MA

• Activity Based Costing

  Response to the manager's need for more accurate product costs
• Activity Based Costing

  is a costing method that is designed to provide managers with cost information for strategic and other decisions that potentially affect
• Official costing system

  used for preparing external financial reports
• activity-based costing

  used for internal decision making and for managing activities
• Advantages of ABC

  -more accurate products costs

  - better data for decision making

  -tighter cost control
• Limitations of ABC


  difficulty and high costs involved with gathering data
• Design of an ABC

  1. Process value analysis

  2. Identifying activity centers

  3. Assigning costs to activity centers

  4. Selecting cost drivers
• Process Value Analysis


  1. Analyze activities required to make the product or perform the service

  2. Classify each activity as value-added or non-value added

  3. Identify ways to either reduce or eliminate the non-value added activities
• Identifying Activity Centers

  -can be defined as a part of the production process for which management wants a separate reporting of the cost of the activity involved
• Unit level activities


  performed each time a unit is produced
• Batch-level activities


  performed each time a batch is handled or processed,
• product-level activities


  performed as needed to support the production
• Facility-level activities


  sustain a facility's general manufacturing process
• assign cost to activity centers

  where they are accumulated while waiting to be applied to products.
• select cost drivers


  assigning costs from the activity center to the product using appropriate cost drivers
• Activity-based management

  a management tool that involves analyzing and costing activities with the goal of improving efficiency and effectiveness
• Operational ABM


  enhances operational efficiency and asset utilization and lowers costs; it focuses on doing things right and performing activities more efficiently
• Strategic ABM


  attempts to alter the demand for activities and increases profitability through improved activity efficiency
• Cost Driver Analysis


  effects of the driver on the cost of activity
• Benchmarking


  search for best practices
• cause-and-end diagram


  maps out causes that affect an activity
• Pareto Analysis


  cost driver that contribute to the total cost
• Activity Analysis

  identifies and describes the activities in an organization
• Performance measurement


  identification of the work performed and the results achieved by an activity process
• non-financial performance

  measures evaluate operating characteristics of manufacturing process and measures of feedbacks
• Opportunity costing concept


  capacity of the plant and the other resources
• Capacity usage information


  is a critical signal of the potential relevance of opportunity costs