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8/10/2019 Chapter 18 ABC
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Chapter 18
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Managers Activities
Planning CVP19Budgeting
20
CostConcepts
15
DirectingJob Order
Costing 16
Activity
Based
Costing 18
CostBehavior
15
Controlling &
Evaluating
Short Term
Decision
Making 23
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Must have better information
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Uncover potential problems or
bottlenecks before they occur.
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Value-Based system provides more relevant information
because it is more predictive and directly relates to the
decisions made than traditions systems
1. Value chain Analysis
2. ABC and ABM3. Just in Time (JIT) and Lean Environments
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Value Basedfocuses on eliminating
waste, increasing Quality & Productivity
Value Chainlook at each step in producing a
product that adds what? Ans:______
The value chain has both primary processes and
support services (ex: data processing, accounting)
Value chain
R&D, design, supply, production, sales
and marketing, distribution and customer service
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Value Added Activities
Add what? Ans: ____________
to the product or service as perceived by the
customer (are the customers willing to pay for it?)
Non-value added activities add COSTSbut do not
increase its market value. Managers eliminate non-
value added activities that are not essential
Do E5, E6 together
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ABM vs. Lean Accounting
both: analyze value and non-value activities, seek to
eliminate waste, reduce costs
Activity Based management(ABM) uses ABC
to cost productspretty complex accounting
Leanuses JIT, reorganizing activities so
performed in work cells so more costs become
direct and simplifies accounting
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Activity Based Costing (ABC)
Key: It calculatesa more accurate product cost
than traditional methods
by.categorizing all indirect costs by
activitybased on cause and effect relationships
Sothis improves accuracy in
allocating costs to cost objects (products)
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ABC Steps
1. Identify each activity
2. Estimate the costs for each activity
3. Identify a cost driver for each activity, and estimate
quantity of each cost driver
4. Calculate an activity rate for each activity
5. Assign costs to cost objects
Do Exercise 7 together, P2 in groups look over handout
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Understanding Cost Hierarchy helps
assign costs
1. Unit level activitiesperformed each time a unit isproduced (generally VC)
2. Batch level activitiesperformed each time a _______ is
produced (set up and moving and inspecting)
3. Product level activitiesperformed each time to support aparticular _________ line (design, engineering, marketingchanging)
4. Facility level activitiesperformed to support a _____general manufacturing process (generally FC)
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Its the idea that we want to have aLEAN
operating environment
Eliminate waste, focus on increasing quality and
productivity
Think: simple is better, quality is critical, how can we
always be improving, dont keep tons of inventory on
hand, what doesnt add value get rid of it, have multi-
skilled workers who adjustwhat else?So. group all the machines in one work area
called a work cell, making more direct costs
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Just in Time (JIT) and Lean
Idea: you make productsJIT
Requires all resources (materials, people, facilities)
be read and used ONLY as neededDecrease WIP, decrease materials on hand
Think.pull through system (customers ordertriggers the process of purchasing and schedulingproduction)
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Looking Ahead
1. Group Quiz Thursday with note sheet
Chapter 18 (all conceptual)
2. Test #2 next Tuesday with no note sheet
Chapters 15, 16, and 18
Look for review sheet on Ramct soon
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