Activity Based Management
Chapter Five
Definition
Activity Based Activities plus Value Added
or
How to submit a successful and profitable
BID
ABC Steps
1. Identify and Classify Activities
◦ Unit, Batch, Product, Customer, Facility
◦ Exercise 4.33 pg 168 and 4.35 pg 169
2. Estimate Cost of Activity
3. 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 Steps
1. Identify Value Added vs non value
added activity
2. Score as high or low
3. Identify opportunities that enhance
value added and decrease non value
added.
Target Costing
Company Needs = Company profit goals
Revenue
X Return on Sales (ROS) GM% no S&A
= Target Cost
3 elements of Target Costing
# of units sold, Sales price, ROS %
Exercises 5.34, 5.35, 5.36
Non Value Added Examples
Pg 190
Build up of Inventory
Queque Time
Production Moving Time
Worker Moving Time
Poor Quality
What Makes a Value Added Activity
1. How do you measure value added
Acitivities
2. Who would be responsible for the
activity
Customer
wants more of the activity
Reach the company’s goal by
performing the activity
Example
On - time delivery adds value
Rework and rewrite – non value added
Costing our each activitity
1. Identify major activity
2.Identify Subactivity and cost – usually just DL
3. Assign Order- Value from 1-5 highest value
4. Cost the activity
5. 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 Homework
5.41 (60 Min)
5.47 ( 40 min)
5.54 ( 45 min)
Can you get the homework done faster.
Strategic Planning Part II
Submit online with excel spreadsheets
Due ???????