ABC

• Activity-Based Costing


  A cost system that focuses on activities, determines their costs, and then uses appropriate cost drivers to trace costs to the products based on the activities
• Activity-Based Management


  Integrates ABC with other concepts such as TQM and target costing to produce a management system that strives for excellence through cost reduction, continuous process improvement, and productivity gains
• Activity center


  A unit of an organization that performs a set of tasks
• Cost Assignment


  Encompasses both cost tracing (assignment of direct costs to a cost object) and cost allocation (assignment of indirect costs to the cost object)
• Cost driver


  Also called activity driver. Any activity, factor or event that causes a cost to be incurred. It is used as an allocation base for assigning a particular cost pool to cost objects
• Cost object


  The item (product, department, process, etc.) for which cost is being determined. Examples of cost object include a branch, a product line, a service line, a customer, a department, a brand, a project, etc.
• Cost pool


  Also called cost center. A group of related costs accumulated together to be allocated to a product or some other cost object. Examples of cost pools include factory rent, insurance, machine maintenance cost, factory fuel, etc.
• Types of activities

  • Unit-level activities
  • Batch-level activities
  • Product-level activities
  • Facility-level activities
• Unit-level activities


  Those activities which are performed each time a single product or unit is produced. Examples are Direct materials and direct labor activities
• Batch-level activities


  Those activities which are performed each time a batch of products or group of identical products are produced. Examples are machine setups, inspections, production scheduling, materials handling, etc.
• Product-level activities


  Those activities which are performed to support the production of each different type of product. Examples are maintenance of equipment, engineering charges, testing routines, maintaining bills of materials, etc.
• Facility-level activities


  Those activities which are needed to sustain a factory's general manufacturing process. Examples are factory management, maintenance, security, plant depreciation, etc.
• Value chain


  The sequence of business functions in which value is added to a firm's products or services. This sequence includes research and development, product design, manufacturing, marketing, distribution, and customer service
• Value analysis


  An approach to improving the value of an item or process by understanding its constituent components and their associated costs. It then seeks to find improvements to the components by either reducing their cost or increasing the value of the functions
• Value-added activities


  Those activities which customers perceive as increasing the worth of a product or service and for which customers are willing to pay
• Value-added cost


  The cost of activities that cannot be eliminated without the customer perceiving a decline in product quality or performance
• Non value-added activities


  Increase the cost of a product but do not increase its value to customers
• Non value-added cost


  The cost of activities that can be eliminated without the customer perceiving a decline in product quality or performance
• Benchmarking


  The continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance
• Best practices


  The best ways to perform a process. Best practices represent the means by which worldclass organizations have achieved superior performance
• Bottleneck resources


  Any resource or operation where the capacity is less than the demand placed upon it
• Business process reengineering


  The fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service speed, and customer satisfaction
• Cause-and-effect (fishbone or Ishikawa) diagrams

  Identifies the potential causes of defects. Four categories of potential causes of failure are: human factors, methods and design factors, machinerelated factors, and materials and components factors
• Cause-and-effect diagrams


  Are used to systematically list the different causes that can be attributed to a problem (or an effect). A cause-and-effect diagram can aid in identifying the reasons why a process goes out of control
• Computer-Aided Manufacturing (CAM)


  The use of computers to plan, implement and control production
• Computer-Aided Design (CAD)


  The use of computer in product development, analysis and design modification to improve the quality and performance of the product
• Computer-Integrated Manufacturing (CIM)


  A highly automated and integrated production process that is controlled by computers
• Continuous improvement (CI)


  It seeks continual improvement of machinery, materials, labor, and production methods, through various means including suggestions and ideas from employees and customers
• Control charts


  Are statistical plots derived from measuring factory processes; they help detect "process drift," or deviation, before it generates defects
• Flexible manufacturing system (FMS)


  A series of computer-controlled manufacturing processes that can be easily changed to make a variety of products
• Just-In-Time (JIT) production system

  A "demand pull" system in which each component of a finished good is produced when needed by the next production stage. The primary benefit of JIT is reduction of inventories, ideally to zero
• Kaizen


  The Japanese art of continuous improvement. A philosophy of continuous improvement of working practices that underlies total quality management and just-in-time business techniques
• Lean manufacturing


  An operational strategy focused on achieving the shortest possible cycle time by eliminating waste
• Pareto chart


  A bar graph that ranks causes of process variations by the degree of impact on quality. "Pareto Principle" states that 80% of the problems come from 20% of the causes
• Plan-Do-Check-Act (PDCA)


  Also called the Deming Wheel, focuses on the sequential and continual nature of the CI process
• Poka-yoke (mistake-proofing)


  It involves making the workplace mistake-proof
• Product life cycle costing


  Tracks the accumulation of costs that occur starting with the research and development for a product and ending with the time at which sales and customer support are withdrawn. Includes upstream costs (prior to manufacturing; i.e. prototype, testing and engineering), manufacturing costs and downstream costs (costs subsequent to manufacturing; i.e. packaging, shipping and handling, promotion, service and warranty)
• Robust design


  A discipline for making designs "production-proof" by building in tolerances for manufacturing variables that are known to be unavoidable
• Six-Sigma Quality


  A statistical measure expressing how close a product comes to its quality goal. Sixsigma is 99.999997% perfect
• Strategy maps


  Diagrams of the cause and effect relationships between strategic objectives