W413 - Activity Based Costing · W413 - Activity Based Costing Jack Scheuer Implementation Services Accurate information is crucial for decision-making in the business environment.

Summit 2007: Get Connected

W413 - Activity Based Costing

Jack ScheuerImplementation Services

Accurate information is crucial for decision-making in the business environment. Stanpak's Activity Based Costing can provide you with a more complete picture of the profits and costs of doing business. Attend this session to learn how to integrate this feature with the general ledger.

Pre-requisites: None

Wednesday, 1:15 p.m.

© 2007 Activant Solutions Inc. All Rights Reserved

2

Session Objectives

What is activity based cost accounting?What new information does it give me?Why should I consider it?How do I gather and load the data I need to get this information?How do I utilize the information that can now be provided?



3The Benefits of Using Activity Based Cost Accounting

Better evaluation of profitabilityDetermination of what the contribution is to the bottom lineOpportunities to classify customers Analysis of orders, trucks, shipping on a more realistic basis


4

Net Profit

Activity Based Cost Accounting will provide a new determination of profitabilityGross Profit at the order level

Sales less Salesperson’s costUsed for commission calculations

Net Profit at the order levelSales less Actual CostLess commission amountLess factors at the level of

Dollars per each orderDollars per each line itemDollars per $100 of cost on the order



5

Return on Investment Opportunity

Net profit provides a new way of looking at profitability

By orderBy customerBy salesperson

Net profit shows what is contributing to the bottom lineNet profit allows a more effective analytical approach to managing the operation


6

Financial/Cost Accounting

Financial Accounting Assign a fair share of each cost to the applicable accountProduce financial statements

Cost AccountingControl purposes – Assign controllable costs to responsibility centersPlanning purposes – Determine cost implications of alternative courses of action – the opportunity to do some “What If” evaluations



7

Cost Accounting

Typically used in a manufacturing operationRaw Materials – the starting pointWork in Process – accumulated costsInventory – the end point

Our concern is the distribution operationSelling costsGeneral and administrative costsFinancial (non-operating costs)


8

Analysis of Expenses

Functions of a distributorAdministrationOfficeSales serviceSalesStorageHandlingDeliveryCommissions



9

Expense Example - Rent

Warehouse – charge to storageTruck docks – charge to deliveryOrder staging area –charge to handlingWarehouse office – charge to office


10

Programs to Be Used

G-1 – G/L Master File MaintenanceGCL – Chart of Accounts ListingGMM – G/L Master File MaintenanceGAM – Allocating Journal MaintenanceGAL – Allocating Journal Listing

G-2 – Journal ProcessingGAP – Allocating Journal ProcessingGAJ – Allocating Journal Register



11

Allocation of Expenses

Every expense account must relate to a functionExpense accounts covering multiple possibilities need to have sub-accountsChart of accounts

Print chart of accounts (GCL)Add sub-accounts where applicable (GMM)Decide what functions relate to each expense entryEnter the function codes (GMM)


12

Salaries and Wages Account



13Chart Of Accounts – Salaries Admin –Function #


14

Chart of Accounts – Sub-Accounts

7Utilities - Delivery790406Utilities – Handling790305Utilities – Storage790202Utilities – Office790105Utilities79000

Function Number

Account NameAccount Number



15

Allocation to Sub-Accounts


16

Data Capture

Starting point is the general ledger and the definition of functions for all expense accountsMonth end inventory update (MIU) provides invoice and line item countG/L expense analysis (GEA) provides invoice processing costsSystem file configuration (ZM) allows invoice costs to be loaded for subsequent processing



17

Month End Inventory Update (MIU)


18

General Ledger Expense Analysis (GEA)



19

General Ledger Expense Analysis Report

Analytical report to capture the expenses by functionGeneral Ledger Expense Analysis Report


20

System File Maintenance (ZM)



21

Proforma (OPF)


22

Proforma (OPF)



23

Break Even – Warehouse Sales

MINIMUM MARGINS FOR BREAK-EVEN ORDERS (Inventory Sales)TOTAL PRODUCT COST PER ORDER

# of Lines $50 $100 $250 $500 $750 $1,000 $2,000 $3,000 $5,000 Warehouse1 36.3% 29.1% 23.9% 22.0% 21.4% 21.0% 20.5% 20.4% 20.2% Flat Rate $10.472 40.5% 31.8% 25.2% 22.7% 21.8% 21.4% 20.7% 20.5% 20.3% Line Rate $5.543 44.2% 34.3% 26.4% 23.4% 22.3% 21.7% 20.9% 20.6% 20.4% Rate/$1 $0.204 47.5% 36.6% 27.6% 24.0% 22.7% 22.1% 21.1% 20.7% 20.4%5 50.3% 38.7% 28.7% 24.6% 23.2% 22.4% 21.2% 20.8% 20.5%6 52.9% 40.7% 29.8% 25.3% 23.6% 22.7% 21.4% 21.0% 20.6%7 55.3% 42.6% 30.9% 25.9% 24.0% 23.1% 21.6% 21.1% 20.7%8 57.4% 44.4% 32.0% 26.5% 24.4% 23.4% 21.7% 21.2% 20.7%9 59.3% 46.1% 33.0% 27.1% 24.9% 23.7% 21.9% 21.3% 20.8%10 61.1% 47.6% 33.9% 27.7% 25.3% 24.0% 22.1% 21.4% 20.9%

MINIMUM G-P DOLLARS FOR BREAK-EVEN ORDERS (Inventory Sales)TOTAL PRODUCT COST PER ORDER

# of Lines $50 $100 $250 $500 $750 $1,000 $2,000 $3,000 $5,000 Warehouse1 $29 $41 $79 $141 $204 $267 $517 $768 $1,269 Flat Rate $10.472 $34 $47 $84 $147 $209 $272 $523 $773 $1,274 Line Rate $5.543 $40 $52 $90 $152 $215 $278 $528 $779 $1,280 Rate/$1 $0.204 $45 $58 $95 $158 $221 $283 $534 $784 $1,2855 $51 $63 $101 $163 $226 $289 $539 $790 $1,2916 $56 $69 $106 $169 $232 $294 $545 $795 $1,2967 $62 $74 $112 $175 $237 $300 $550 $801 $1,3028 $67 $80 $117 $180 $243 $305 $556 $806 $1,3079 $73 $85 $123 $186 $248 $311 $561 $812 $1,31310 $78 $91 $128 $191 $254 $316 $567 $817 $1,318

Note: Above figures assume commission rate of 25%.


24

Break Even – Direct Sales

MINIMUM MARGINS FOR BREAK-EVEN ORDERS (Direct Sales)TOTAL PRODUCT COST PER ORDER

# of Lines $50 $100 $250 $500 $750 $1,000 $2,500 $5,000 $10,000 Direct1 29.0% 24.1% 20.8% 19.6% 19.2% 19.0% 18.7% 18.6% 18.5% Flat Rate $4.102 33.7% 26.8% 22.0% 20.3% 19.7% 19.4% 18.8% 18.6% 18.5% Line Rate $5.003 37.8% 29.4% 23.2% 20.9% 20.1% 19.7% 18.9% 18.7% 18.6% Rate/$1 $0.164 41.5% 31.8% 24.4% 21.5% 20.5% 20.0% 19.1% 18.8% 18.6%5 44.7% 34.1% 25.5% 22.1% 20.9% 20.3% 19.2% 18.8% 18.6%6 47.6% 36.2% 26.6% 22.7% 21.4% 20.6% 19.3% 18.9% 18.7%7 50.2% 38.2% 27.7% 23.3% 21.8% 21.0% 19.5% 19.0% 18.7%8 52.6% 40.0% 28.7% 23.9% 22.2% 21.3% 19.6% 19.0% 18.7%9 54.7% 41.8% 29.7% 24.5% 22.6% 21.6% 19.7% 19.1% 18.8%10 56.7% 43.4% 30.7% 25.0% 23.0% 21.9% 19.8% 19.1% 18.8%

MINIMUM G-P DOLLARS FOR BREAK-EVEN ORDERS (Direct Sales)TOTAL PRODUCT COST PER ORDER

# of Lines $50 $100 $250 $500 $750 $1,000 $2,500 $5,000 $10,000 Direct1 $20 $32 $66 $122 $179 $235 $574 $1,139 $2,269 Flat Rate $4.102 $25 $37 $71 $127 $184 $240 $579 $1,144 $2,274 Line Rate $5.003 $30 $42 $76 $132 $189 $245 $584 $1,149 $2,279 Rate/$100 $0.164 $35 $47 $81 $137 $194 $250 $589 $1,154 $2,2845 $40 $52 $86 $142 $199 $255 $594 $1,159 $2,2896 $45 $57 $91 $147 $204 $260 $599 $1,164 $2,2947 $50 $62 $96 $152 $209 $265 $604 $1,169 $2,2998 $55 $67 $101 $157 $214 $270 $609 $1,174 $2,3049 $60 $72 $106 $162 $219 $275 $614 $1,179 $2,30910 $65 $77 $111 $167 $224 $280 $619 $1,184 $2,314

Note: Above figures assume commission rate of 30%.



25

QICLOOK - TRKPROF


26

Truck Profit Report



27

QICLOOK - NETPROF


28

QICLOOK - NETRANK



29

QICLOOK Report – Customer Ranking


30

CRC – Customer Rank Calculator



31

CRC – Customer Rank Calculator


32

QICLOOK – Rank by Net Profit



33

QICLOOK – Rank by Net Profit


34

Additional ResourcesNational Paper Trade Association (NPTA) – “guide to profitable management”Session W719 – Stanpak File StructuresSession T717 – Using QICLOOK with Microsoft EXCELWeb Site – www.distribution.activant.com

Stanpak – Documentation – Rel 6.01 – General Procedures ManualStanpak – Solutions Database

Your current software – OLDOC – On-line DocumentationSupport personnel are available to discuss this feature



35

Suggested Action Plan

Take a good hard look at your G/L Chart of Accounts and consider expanding it to handle the various expense accountsFollow through with assignments of the appropriate functions to the expensesAs needed, set up some allocation toolsLet the system do the work for you and get a better handle on your bottom line profitablity


36

Summary

Where to get the data needed for Activity Based Cost AccountingWhere the system displays the informationWhat you might do to more effectively utilize the net profit information



37

Thank You for Attending

W413 – Activity Based CostingJack Scheuer Please submit the Session Feedback Form

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W413 - Activity Based Costing · W413 - Activity Based Costing Jack Scheuer Implementation Services Accurate information is crucial for decision-making in the business environment.

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