1. Activity-based Costing
Defining activities and outputs of specific functions
Tracing resources to activities
Tracing activities to determine costs of products/services
Identifying cost drivers of non-value-added activities
Eliminating non-value-added activities

2. Putting It All Together
Traditional view of Costs
Salaries $267,000
Benefits ,000
Postage ,000
Supplies ,500
Telephone ,000
Equipment ,500
Travel ,000
Miscellaneous ,000
Total Budget $387,000

3. Putting It All Together
Process View of Costs
Receive orders $161,499
Resolve errors ,797
Generate confirmations ,006
Answer Inquiries ,212
Generate reports, Mgmt ,329
Total Budget $387,000

4. Goals Identify and eliminate non-value added activities
Improve work processes
Prove the value of the activity or eliminate it
Avoid disruptive layoffs
Justify new hires