1. BASICS OF ABC Dennis Geyer Geyer Management Associates Tel: 925 246 9887 Email: dgeyer@geyermanagement.comdgeyer@geyermanagement.com © Copyright 2007

2. 2007Geyer Management Associates 2 The ABC Model Resources Activities Cost Objects Activity Drivers Resource Drivers What? How? For whom?

3. 2007Geyer Management Associates 3 Resources Activities Cost Objects Resources are assets applied or consumed in the performance of activities

4. 2007Geyer Management Associates 4 Examples of Resources  Labor  Materials  Facilities  Energy  Technology

5. 2007Geyer Management Associates 5 Activities Resources Activities Cost Objects Activities are units of work required to create value for the customer.

6. 2007Geyer Management Associates 6 Examples of Activities Unit-level Activities are performed each time a unit is produced or sold. Batch-level Activities are performed when a group or batch is produced. Product-level Activities are required to maintain a particular product or service. Customer-level Activities are required to service a particular customer or channel of distribution. Facilities-level Activities are required to support a specific plant or business site.

7. 2007Geyer Management Associates 7 Cost Objects Resources Activities Cost Objects Cost Objects are units of output for which a separate cost measurement is desired.

8. 2007Geyer Management Associates 8 Examples of Cost Objects  End Products  Component Parts  Services  Projects  Customers  Departments

9. 2007Geyer Management Associates 9 The ABM Model Resources Activities Cost Drivers Performance Measures Products & Customers Cost Dimension Process Dimension Why?How well?

10. 2007Geyer Management Associates 10 Two-Dimensional Model Cost Dimension provides information about resources, activities, products, and customers with a view to cost measurement. Process Dimension provides information about which activities are performed, why they are performed, and how well they are performed with a view to cost management.

11. 2007Geyer Management Associates 11 Cost Driver Analysis Activities Cost Drivers Performance Measures Cost Driver Analysis identifies those factors that are the root causes of activity costs.

12. 2007Geyer Management Associates 12 Examples of Cost Drivers  Incompatible or redundant systems  Unreliable operating capacity  Unwieldy physical layout  Lack of workforce training  Poor equipment maintenance  Overly complex procedures  Remoteness from customer

13. 2007Geyer Management Associates 13 Process Value Analysis Activities Cost Drivers Performance Measures Process Value Analysis distinguishes value-added from nonvalue-added activities with the objective of cost reduction.

14. 2007Geyer Management Associates 14 Examples of NVA Activities Scheduling to determine when and how many batches to produce. Moving required to transport materials from one place to another. Waiting caused by the delay from one process to the next. Inspecting to ensure that the product meets required specifications. Storing caused by the need to hold material in inventory.

15. 2007Geyer Management Associates 15 Performance Measurement Activities Cost Drivers Performance Measures Performance Measurement is the process of evaluating improvements in activities that result from attempts to increase customer value.

16. 2007Geyer Management Associates 16 Examples of Performance Measures Activity Cost focuses on the resources consumed when an activity is performed. Activity Efficiency focuses on the relationship of activity inputs to activity outputs. Activity Quality focuses on performing an activity according to specifications without defects. Activity Time focuses on the time required to complete an activity.