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PowerPointPowerPoint Presentation by Presentation by
Gail B. WrightGail B. WrightProfessor Emeritus of AccountingProfessor Emeritus of AccountingBryant UniversityBryant University
Inproving decision making with accurate cost information
Reducing costs by encouraging, supporting continuous improvements efforts
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ABM IMPLEMENTATION MODEL
EXH
IBIT
EXH
IBIT
5-25-2
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SYSTEMS PLANNINGAddresses these issues
Purpose, objectives of ABM systemOrganizations current & desired competitive
positionOrganization’s business processes & product mixTimeline, assigned responsibilities, resources
required for implementationAbility of organization to implement, learn, use
new information
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ACTIVITY IDENTIFICATION, DEFINITION, CLASSIFICATIONKnowing tasks that define activity helps
improve efficiencyClassifying activities allows ABM to connect
with other continuous improvement initiativesJIT manufacturingTQMTotal environmental quality cost management
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WHY DOES ABM FAIL?Implementation failure due to
Lack of support from higher level managementResults that do not occur as expectedSignificant investment in education, training not
madeResistance to changeFailure to integrate new system
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ABM & RESPONSIBILITY ACCOUNTING
Responsibility accounting is fundamental tool of managerial accounting control
Also related to process value analysis (PVA)Assigning responsibilityEstablishing performance measures, benchmarksEvaluating performanceAssigning rewards
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RESPONSIBILITY ACCOUNTING SYSTEM
3 ways to assign responsibility and measure performanceFinancial (functional)-based systemActivity-based systemStrategic-based system (Ch. 16)
Understanding what causes activity costs by understanding activity inputs & outputs; most
basic causes for an activity being performed.
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ROOT CAUSES: Definition
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Why are “root causes” so important?
Because the root cause of 1 activity may be root cause of
related activities.
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ACTIVITY ANALYSIS: Definition
The process of identifying, describing, evaluating the activities an organization
performs.
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ACTIVITY ANALYSIS OUTCOMESWhat activities are doneHow many people perform the activitiesTime, resources required to perform
activitiesAssessing value of activities to
organizationActivities can be classified as
Value-addedNon-value-added
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What are “value-added” activities?
Value-added activities are activities that are necessary to
remain in business.
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VALUE-ADDED ACTIVITIESAre
Mandatory to comply with lawsDiscretionary
Produces a change of stateNot achievable by preceding activitiesEnables other activities to be performed
Performed at a value-added cost to achieve perfect efficiency
Eliminate waste & reduce costs
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NON-VALUE-ADDED ACTIVITIES
Are unnecessaryFail to satisfy 3 defining conditions of
value-added activitiesIncur non-value-added costs of
inefficiency
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NON-VALUE-ADDED ACTIVITIES: Examples
SchedulingMovingWaitingInspectingStoring
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Challenge of activity analysis: produce goods without using non-value-added activities.
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KAIZEN COSTING: Definition
The effort to reduce costs of existing products & processes.
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REDUCING COSTSActivity elimination
Focusing on non-value-added activitiesActivity selection
Choosing among different sets of activitiesActivity reduction
Reducing time, resources requiredActivity sharing
Using economies of scale
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ACTIVITY PERFORMANCE MEASUREMENT: Definition
Assessing how well an activity was performed and results
achieved using both financial & nonfinancial measures.
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ACTIVITY PERFORMANCE MEASURES
EfficiencyRelationship of activity inputs & outputs
QualityDoing it right the first time
TimeShortening activity time
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3 Describe activity performance measurement.
LEARNING OBJECTIVE
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FINANCIAL MEASURES OF ACTIVITY PERFORMANCE
For potential & actual savingsValue- & non-value-added activity cost reportsTrends in activity cost reportsKaizen standard settingBenchmarkingLife-cycle costing
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VALUE-ADDED STANDARD
Calls for elimination of non-value-added activities
Identifies optimal activity outputCompares actual to value-added activity costs
allowing management toAssess level of activity inefficiencyDetermine potential for improvement