1. Copyright © 2013 Nelson Education Ltd.
PowerPoint Presentations for Cornerstones of
Cost Accounting
First Canadian Edition
Adapted by
George Gekas
Ryerson University
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2. ACTIVITY-BASED MANAGEMENT
CHAPTER 14
14-2
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3. Copyright © 2013 Nelson Education Ltd.
The Relationship of Activity-Based Costing and Activity-Based Management
OBJECTIVE 1
Continuous Improvement
Process of improving performance by constantly searching for ways to eliminate waste.
Activity-Based Management (ABM)
Systemwide, integrated approach that focuses management’s attention on activities with the objectives of improving customer value and the profit achieved by providing this value
Activity-Based Costing (ABC)
Major source of information for activity-based management
14-3
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4. Copyright © 2013 Nelson Education Ltd.
The Relationship of Activity-Based Costing and Activity-Based Management
OBJECTIVE 1
14-4
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5. Copyright © 2013 Nelson Education Ltd.
OBJECTIVE 2
Process Dimension:
Process Value Analysis
Process Value Analysis (PVA)
Fundamental to activity-based responsibility accounting, focuses on accountability for activities rather than costs, and emphasizes the maximization of systemwide performance instead of individual performance.
Process value analysis is concerned with:
Driver analysis
Activity analysis
Performance measurement
14-5
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OBJECTIVE 2
Process Dimension:
Process Value Analysis
Driver Analysis
The effort expended to identify the factors that are the root causes of activity costs.
Activity Analysis
The process of identifying, describing, and evaluating the activities an organization performs.
Should produce four outcomes:
What activities are performed
How many people perform the activities
The time and resources are required to perform the activities
An assessment of the value of the activities to the organization
Activities can be value-added or non-value-added
14-6
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OBJECTIVE 2
Process Dimension:
Process Value Analysis
Value-Added Activities
Activities necessary to remain in business
Contribute to customer value and/or help meet an organization’s needs
Some activities are discretionary but are also value added:
Activity produces a change of state
Change of state was not achievable by preceding activities
Activity enables other activities to be performed
Value-Added Costs
Costs to perform value added activities with perfect efficiency
14-7
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OBJECTIVE 2
Process Dimension:
Process Value Analysis
Non-Value-Added Activities
All activities other than those essential to remain in business
Fail to produce a change in the product’s state or replicate work because it wasn’t done correctly the first time
In manufacturing, five major wasteful and unnecessary activities:
Scheduling
Moving
Waiting
Inspecting
Storing
14-8
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9. Process Value Analysis
OBJECTIVE 2
Process Dimension:
Process Value Analysis
Activity management can reduce costs in four ways:
Activity elimination
Activity selection
Activity reduction
Activity sharing
14-9
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10. Cost Dimension: Financial Measures of Activity Efficiency 3
OBJECTIVE 3
Reporting Value- and Non-Value-Added Costs
See Cornerstone 14-1
14-10
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11. Copyright © 2013 Nelson Education Ltd.
Cost Dimension: Financial Measures of Activity Efficiency
OBJECTIVE 3
Kaizen Costing
See Cornerstone 14-3
14-11
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12. Internal Benchmarking External Benchmarking
Cost Dimension: Financial Measures of Activity Efficiency
OBJECTIVE 3
Benchmarking
Complimentary approach to Kaizen costing and activity-based management
Uses best practices found within and outside the organization as the standard for evaluating and improving activity performance
Internal Benchmarking
Benchmarking against internal operations
External Benchmarking
Benchmarking that involves comparison with others outside the organization
14-12
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13. Cost Dimension: Financial Measures of Activity Efficiency 3
OBJECTIVE 3
Activity Flexible Budgeting
The prediction of what activity costs will be as activity output changes
14-13
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14. Copyright © 2013 Nelson Education Ltd.
Cost Dimension: Financial Measures of Activity Efficiency
OBJECTIVE 3
14-14
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15. Copyright © 2013 Nelson Education Ltd.
Cost Dimension: Financial Measures of Activity Efficiency
OBJECTIVE 3
14-15
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16. Cost Dimension: Financial Measures of Activity Efficiency 3
OBJECTIVE 3
Activity Capacity
The number of times an activity can be performed
What should the activity capacity be?
How much of the capacity acquired was actually used?
14-16
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Implementing Activity-Based Management
OBJECTIVE 4
Activity-Based Management (ABM)
Objectives:
Improving decision making by providing accurate cost information
Reducing costs by encouraging and supporting continuous improvement efforts
14-17
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18. Copyright © 2013 Nelson Education Ltd.
Implementing Activity-Based Management
OBJECTIVE 4
14-18
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19. Copyright © 2013 Nelson Education Ltd.
Implementing Activity-Based Management
OBJECTIVE 4
Systems planning provides the justification for implementing ABM and addresses the following issues:
The purpose and objectives of the ABM system
The organization’s current and desired competitive position
The organization’s business processes and product mix
The timeline, assigned responsibilities, and resources required for implementation
The ability of the organization to implement, learn, and use new information
14-19
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Implementing Activity-Based Management
OBJECTIVE 4
Why ABM implementations fail:
Lack of support of higher-level management
Failure to maintain support from higher-level management
Resistance to change
Failure to integrate the new system
14-20
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Activity-Based Responsibility Accounting
OBJECTIVE 5
Responsibility Accounting
Fundamental tool of managerial control
Objective:
To influence behaviour in such a way that individual and organizational initiatives are aligned to achieve a common goal or goals
Four essential elements:
Assigning responsibility
Establishing performance measures or benchmarks
Evaluating performance
Assigning rewards
14-21
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Activity-Based Responsibility Accounting
OBJECTIVE 5
14-22
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23. Activity-Based Responsibility Accounting 5
OBJECTIVE 5
Assigning Responsibility
14-23
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24. Activity-Based Responsibility Accounting 5
OBJECTIVE 5
Establishing and Evaluating
Performance Measures
14-24
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Activity-Based Responsibility Accounting
OBJECTIVE 5
Assigning Rewards
14-25
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26. End of Chapter 14