Activity Based Activity Based ManagementManagementChapter Five

DefinitionDefinitionActivity Based Activities plus

Value Added orHow to submit a successful and

profitable BID

ABC StepsABC Steps1. Identify and Classify Activities

◦Unit, Batch, Product, Customer, Facility◦Exercise 4.33 pg 168 and 4.35 pg 169

2. Estimate Cost of Activity3. Determine cost driver and

calculate rate Estimated Cost/ Estimated

driver = rate◦Exercise 4.31 and 4.32 pg 168

Assign or apply rate to actual driver

Activity Based Management Activity Based Management StepsSteps1. Identify Value Added vs non

value added activity2. Score as high or low3. Identify opportunities that

enhance value added and decrease non value added.

Target CostingTarget CostingCompany Needs = Company profit

goals

RevenueX Return on Sales (ROS) GM% no S&A= Target Cost3 elements of Target Costing# of units sold, Sales price, ROS %Exercises 5.34, 5.35, 5.36

Non Value Added Non Value Added ExamplesExamplesPg 190Build up of InventoryQueque TimeProduction Moving TimeWorker Moving TimePoor Quality

What Makes a Value Added What Makes a Value Added ActivityActivity1. How do you measure value

added Acitivities2. Who would be responsible for

the activityCustomer wants more of the activity

Reach the company’s goal by performing the activity

ExampleExampleOn - time delivery adds valueRework and rewrite – non value

added

Costing our each activitityCosting our each activitity1. Identify major activity2.Identify Subactivity and cost – usually

just DL3. Assign Order- Value from 1-5 highest

value4. Cost the activity5. Cost each level of value – How much

would you save

Exercise 5.25, 5.26, 5.27and 5.28 pg 205 - 206

By doing Activity Based Management analysis for one customer your efforts will affect the production of other products.

Chapter 5 HomeworkChapter 5 Homework5.41 (60 Min)5.47 ( 40 min)5.54 ( 45 min)Can you get the homework done

faster.

Strategic Planning Part IIStrategic Planning Part IISubmit online with excel

spreadsheetsDue ???????