AKUNTANSI MANAJEMEN LANJUTAN
PENENTUAN HARGA POKOK PRODUK DAN
PEMBUATAN KEPUTUSAN DALAM
LINGKUNGAN PEMANUFAKTURAN MAJU
rowland.pasaribu@gmail.c
PERTEMUAN II, 28 OKTOBER 2013
• ACTIVITY BASED COSTING
• ACTIVITY BASED MANAGEMENT
• INVENTORY MANAGEMENT
Learning Objective 1
Describe the purposes of
cost management systems.
4-3
Cost Management System
A cost-management system (CMS) is a
collection of tools and techniques that
identifies how management’s decisions
affect costs.
4-4
What is Cost Accounting?
Cost accounting is that part of the
accounting system that measures costs
for the purposes of management decision
making and financial reporting.
4-5
Learning Objective 2
Explain the relationships
among cost, cost objective,
cost accumulation, and
cost allocation.
4-6
Cost Accounting System
Cost
Accumulation
Collecting costs by some
“natural” classification
such as materials or labor
Cost
Allocation
Tracing costs to one or
more cost objectives
4-7
Cost Accounting System
RAW MATERIAL
COSTS (METALS
Cost Accumulation
Cost Allocation
to Cost Objects:
1. Departments
2. Activities
MACHINING
DEPARTMENT
FINISHING
DEPARTMENT
ACTIVITY ACTIVITY
ACTIVITY ACTIVITY
CABINETS
3. Products
CABINETS
DESKS
DESKS
TABLES
4-8
TABLES
Cost
• A cost may be defined as a sacrifice or giving
up of resources for a particular purpose.
• Costs are frequently measured by the
monetary units that must be paid for goods
and services.
4-9
Cost Objective
What is a cost object or cost objective?
It is anything for which a separate measurement
of costs is desired.
4 - 10
Learning Objective 3
Distinguish among direct,
indirect, and unallocated costs.
4 - 11
Direct Costs
What are direct costs?
Direct costs can be identified specifically
and exclusively with a given cost
objective in an economically
feasible way.
4 - 12
Indirect Costs
What are indirect costs?
Indirect costs cannot be identified
specifically and exclusively with a
given cost objective in an economically
feasible way.
4 - 13
What Distinguishes
Direct and Indirect Costs?
• Managers prefer to classify costs as direct
rather than indirect whenever it is
“economically feasible” or “cost effective.”
• Other factors also influence whether a cost is
considered direct or indirect.
• The key is the particular cost objective.
4 - 14
Categories of
Manufacturing Costs
Any raw material, labor, or other input
used by any organization could,
in theory, be identified as a
direct or indirect cost
depending on the
cost objective.
4 - 15
Categories of
Manufacturing Costs
• All costs which are eventually allocated
products are classified as either…
1 direct materials,
2 direct labor, or
3 indirect manufacturing.
4 - 16
to
Direct Material Costs...
– include the acquisition costs of all materials
that are physically identified as a part of the
manufactured goods and that may be traced
to the manufactured goods in an economically
feasible way.
4 - 17
Direct Labor Costs...
– include the wages of all labor that can be
traced specifically and exclusively to the
manufactured goods in an economically
feasible way.
4 - 18
Indirect Manufacturing Costs...
– or factory overhead, include all costs
associated with the manufacturing process
that cannot be traced to the manufactured
goods in an economically feasible way.
4 - 19
Product Costs...
– are costs identified with goods produced or
purchased for resale.
• Product costs are initially identified as part of
the inventory on hand.
• These costs, inventoriable costs, become
expenses (in the form of cost of goods sold)
only when the inventory is sold.
4 - 20
Period Costs...
– are costs that are deducted as expenses
during the current period without going
through an inventory stage.
4 - 21
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2
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Period or Product Costs
• In merchandising accounting, insurance,
depreciation, and wages are period costs
(expenses of the current period).
• In manufacturing accounting, many of these
items are related to production activities and
thus, as indirect manufacturing, are product
costs.
4 - 22
Period Costs – Merchandising and
Manufacturing
• In both merchandising and manufacturing
accounting, selling and general administrative
costs are period costs.
4 - 23
Learning Objective 4
Explain how the financial
statements of merchandisers
and manufacturers differ
because of the types of goods
they sell.
4 - 24
Financial Statement Presentation
– Merchandising Companies
Income Statement
Sales
Balance Sheet
–
Merchandise
Inventory
Expiration
Cost of Goods Sold
(an expense)
Equals Gross Margin
–
Period
Costs
Selling and
Administrative
Expenses
Equals Operating Income
4 - 25
Financial Statement Presentation
– Manufacturing Companies
Income Statement
Sales
Balance Sheet
Direct
Material
Inventory
–
Expiration
Cost of Goods Sold
(an expense)
Equals Gross Margin
–
Work-inProcess
Inventory
Finished
Goods
Inventory
Period
Costs
Selling and
Administrative
Expenses
Equals Operating Income
4 - 26
Costs and Income Statements
• On income statements, the detailed reporting
of selling and administrative expenses is
typically the same for manufacturing and
merchandising organizations, but the cost of
goods sold is different.
4 - 27
Cost of Goods Sold
for a Manufacturer
• The manufacturer’s cost of goods produced
and then sold is usually composed of the
three major categories of cost:
1 Direct materials
2 Direct labor
3 Indirect manufacturing
4 - 28
Cost of Goods Sold
for a Retailer or Wholesaler
• The merchandiser’s cost of goods sold is
usually composed of the purchase cost of
items, including freight-in, that are acquired
and then resold.
4 - 29
Learning Objective 5
Understand the main
differences between traditional
and activity-based costing
systems and why ABC systems
provide value to managers.
4 - 30
Traditional Cost System
Direct
Material
Resource
Direct
Labor
Resource
Direct
Trace
Direct
Trace
Products
4 - 31
All
Indirect
Resources
All
Unallocated
Value Chain
Costs
Cost
Driver
Unallocated
Two-Stage Activity-Based
Cost System
Direct
Material
Resource
Direct
Labor
Resource
Direct
Trace
Direct
Trace
Other
Direct
Resources
%
%
Indirect
Resource
Z
%
All
Unallocated
Value Chain
Costs
%
Activity
Activity
1
10
Cost
Cost
Driver
Driver
Products
4 - 32
Indirect
Resource
A
Unallocated
Activity-Based Costing
Understanding the relationships among activities,
resources, costs, and cost drivers is the key to
understanding ABC and how ABC facilitates managers’
understanding of operations.
4 - 33
Activity-Based Costing
Example of Activities and Cost Drivers:
Activities:
Account billing
Bill verification
Account iniquity
Correspondence
4 - 34
Cost Drivers:
No. of lines
No. of accounts
No. of labor hours
No. of letters
Learning Objective 6
Identify the steps involved in the
design and implementation
of an activity-based
costing system.
4 - 35
Designing and Implementing an
Activity-Based Costing System
Step 1
Determine cost of
activities, resources,
and related cost
drivers.
4 - 36
Step 2
Develop a process-based
map representing the flow
of activities, resources, and
their interrelationships.
Designing and Implementing an
Activity-Based Costing System
Step 3
Collect relevant data concerning costs
and the physical flow of the cost-driver
units among resources and activities.
4 - 37
Designing and Implementing an
Activity-Based Costing System
Step 4
Calculate and interpret the new
activity-based information.
Using an activity-based costing system to
improve the operations of an organization
is activity-based management (ABM).
4 - 38
Activity-Based Management
Activity-based management aims to improve the value
received by customers and to improve profits by
identifying opportunities for improvements in strategy and
operations.
4 - 39
Activity-Based Management
• A value-added cost is the cost of an activity
that cannot be eliminated without affecting a
product’s value to the customer.
• In contrast, non-value-added costs are costs
that can be eliminated without affecting a
product’s value to the customer.
4 - 40
Learning Objective 7
Use activity-based cost
information to improve the
operations of an organization.
4 - 41
Using ABC Information
Activity-based management…
provides costs of value-added and
non-value-added activities.
improves managers’ understanding of operations.
4 - 42
Learning Objective 8
Understand cost accounting’s
role in a company’s
improvement efforts across
the value chain.
4 - 43
Cost Accounting and
the Value Chain
A good cost accounting system is critical to
all value-chain functions from research and
development through customer service.
4 - 44
Activity Based Management
Activity-Based Management (ABM)
•Activity-based management (ABM) is a
systemwide, integrated approach that focuses
management’s attention on activities with the
objective of improving customer value and the
profit achieved by providing this value.
–Activity-based management
encompasses both product costing and
process value analysis.
Activity-Based Management Model
Cost Dimension
Resources
Process Dimension
Driver Analysis
Why?
Activities
What?
Products and
Customers
Performance Measures
How Well?
Process Value Analysis
•Process value analysis is fundamental to
activity-based responsibility accounting, focuses
on accountability for activities rather than costs,
and emphasizes the maximization of systemwide
performance instead of individual performance.
– Process value analysis is concerned with:
• Driver analysis
• Activity analysis
• Performance measurement
Activity Analysis
•Activity analysis should produce four outcomes:
•What activities are performed?
•How many people perform the activities?
•The time and resources required to perform the activities.
•An assessment of the value of the activities to the organization,
including a recommendation to select and keep only those that
add value.
Value-Added Activities
•A discretionary activity is classified as valueadded provided it simultaneously satisfies three
conditions:
–The activity produces a change of state.
–The change of state was not achievable by
preceding activities.
–The activity enables other activities to be
performed.
Nonvalue-Added Activities
Nonvalue-Added Activities are activities that add cost and impede
performance.
Examples
•
•
•
•
•
Scheduling
Moving
Waiting
Inspecting
Storing
Activity Analysis
Activity Analysis Can Reduce Costs in Four Ways:
•
•
•
•
Activity elimination
Activity selection
Activity reduction
Activity sharing
Activity Performance Measurement
Three Dimensions of Activity Performance
Efficiency
Quality
Time
Measures of Activity Performance
•Financial measures of
activity efficiency include:
–Value and nonvalueadded activity cost reports
–Trends in activity cost
reports
–Kaizen standard setting
–Benchmarking
INVENTORY MANAGEMENT
Economic Order
Quantity, JIT,
and the Theory
of Contraints
55
Learning Objectives
• Describe the traditional inventory
management model.
• Describe JIT inventory management.
• Explain the basic concepts of constrained
optimization.
• Describe the theory of constraints, and explain
how it can be used to manage inventory.
56
Inventory, thousands of bricks
Managing Inventories
57
Inventory
60
Average
Inventory
30
0
3
6
Weeks
9
12
The Appropriate Inventory Policy
Two Basic Questions Must be Addressed
How much should be ordered or produced?
 When should the order be placed or the setup
be performed?

58
Inventories
• As the firm increases its order size, the number
of orders falls and therefore the order costs
decline. However, an increase in order size also
increases the average amount in inventory, so
that the carrying cost of inventory rises. The
trick is to strike a balance between these two
costs.
59
Basics of Traditional Inventory
Management
Inventory Costs
• Ordering or Setup Costs
• Carrying Costs
• Stockout Costs
60
Inventory Costs
1. Ordering Costs: The costs of placing and
receiving an order
Examples: clerical costs, documents, insurance
for shipment, and unloading.
2. Carrying Costs: The costs of carrying inventory
Examples: insurance, inventory taxes,
obsolescence, opportunity cost of capital tied up
in inventory, and storage.
61
Inventory Costs (continued)
3. Stock-Out Costs: The costs of not having sufficient
inventory
Examples: lost sales, costs of expediting (extra setup,
transportation, etc.) and the costs of
interrupted production.
4. Setup Costs: The costs of preparing equipment and
facilities so they can be used to produce a particular
product or component
Examples: setup labor, lost income (from idled
facilities), and test runs. When a firm
produces the goods internally, ordering costs
are replaced by setup costs.
62
Traditional Reasons for Carrying Inventory
1. To balance ordering or setup costs and carrying
costs
2. To satisfy customer demand (e.g., meet delivery
dates)
3. To avoid shutting down manufacturing facilities
because of:
a. machine failure
b. defective parts
c. unavailable parts
d. late delivery of parts
63
Traditional Reasons for Carrying
Inventory (continued)
4. Unreliable production processes
5. To take advantage of discounts
6. To hedge against future price increases
64
Inventories
Determination of optimal order size
Inventory costs, dollars
Total costs
Carrying costs
Total order costs
Optimal
order size
65
Order size
An Inventory Model
Total Costs = Ordering costs + Carrying cost
TC = PD/Q + CQ/2
whereTC = The total ordering (or setup) and carrying cost
P = The cost of placing and receiving an order (or the cost
of setting up a production run)
Q = The number of units ordered each time an order is
placed (or the lot size for production)
D = The known annual demand
C = The cost of carrying one unit of stock for one year
Economic
order quantity (EOQ) =  2PD/C
66
Inventories
Economic Order Quantity - Order size that
minimizes total inventory costs.
Economic Order Quantity =
67
2 x annual sales x cost per order
carrying cost
Economic-Order-Quantity
Decision Model
The formula for the EOQ model is:
EOQ =
2 DP
C
D = Demand in units for a specified time period
P = Relevant ordering costs per purchase order
C = Relevant carrying costs of one unit in
stock for the time period used for D
68
An EOQ Illustration
EOQ =  2PD/C
D = 1,000 units
Q = 500 units
P = $200 per order
C = $40 per unit
EOQ =  (2 x 200 x 10,000) / 40
EOQ =  10,000
EOQ = 100 units
69
Economic-Order-Quantity
Decision Model
• What are the relevant total costs?
• The formula for relevant total costs (RTC) is:
RTC = Annual relevant ordering costs + Annual
relevant carrying costs
RTC =
( )
D
×P+
Q
( )
Q
×C=
2
DP
+
Q
QC
2
• Q can be any order quantity, not just EOQ.
70
Relevant Total Costs (Dollars)
10,000
Economic-Order-Quantity
Decision Model
8,000
Annual relevant
total costs
6,000
5,434
Annual relevant
ordering costs
4,000
2,000
Annual relevant
carrying costs
71
Order
Quantity (Units)
600
988 1,200
EOQ
1,800
2,400
Considerations in Obtaining
Estimates of Relevant Costs
• Obtaining accurate estimates of the cost
parameters used in the EOQ decision model is a
challenging task.
• What are the relevant incremental costs of carrying
inventory?
– Only those costs of the purchasing company that
change with the quantity of inventory held
72
Considerations in Obtaining
Estimates of Relevant Costs
• What is the relevant opportunity cost of capital?
– It is the return forgone by investing capital in
inventory rather than elsewhere.
– It is calculated as the required rate of return
multiplied by those costs per unit that vary with
the number of units purchased and that are
incurred at the time the units are received.
73
Costs Associated with
Goods for Sale
• Five categories of costs associated with goods for
sale are:
1. Purchasing costs
2. Ordering costs
3. Carrying costs
4. Stockout costs
5. Quality costs
74
Reorder Point
When Demand is Certain
Reorder point = Rate of usage x Lead time
Example: Assume that the average rate of usage is 4
units per day for a component. Assume also
that the time required to place and receive
an order is 10 days. What is the reorder
point?
Reorder point = 4 x 10 = 40 units
Thus, an order should be placed when inventory drops to
40 units.
75
Reorder Point
When Demand is Uncertain
Reorder point = (Ave. rate of usage x Lead time) +
Safety stock
where:
Safety stock = (Maximum usage - Average usage) x
Lead time
76
Reorder Point (continued)
Example:
Suppose that the maximum usage is 6 units per
day and the
average usage is 4 units per day.
The lead time is 10 days.
What is the reorder point?
Safety stock
Reorder point
77
= (6 - 4) x 10 = 20 units
= (4 x 10) + 20 = 60 units
Reorder Point
988
Reorder
Point
Reorder
Point
494
Weeks
1
2
3
Lead Time
2 weeks
78
4
5
6
7
8
Reorder Point (no safety stock)
Reorder point = Rate of usage x Lead time
100
80
ROP
60
40
20
0
Time
79
Safety Stock
• Safety stock is inventory held at all times regardless
of the quantity of inventory ordered using the EOQ
model.
• Safety stock is used as a buffer against unexpected
increases in demand or lead time and unavailability
of stock from suppliers.
80
Evaluating Managers and GoalCongruence Issues
• Goal-congruence issues can arise when there is an
inconsistency between the EOQ decision model and
the model used to evaluate the performance of the
manager implementing the inventory management
decisions.
81
Traditional versus JIT Inventory
Procedures
Inventory Control
System
Traditional Systems
1.
2.
3.
4.
5.
Balance setup and carrying costs
Satisfy customer demand
Avoid manufacturing shutdowns
Take advantage of discounts
Hedge against future price
increases
JIT Systems
1.
Drive setup and carrying costs to
zero
2. Use due-date performance
*3. Total preventive maintenance
*4. Total quality control
*5. The Kanban system
*Rather than holding inventories as a hedge against plant-shutdowns,
JIT attacks the plant-shutdown problem by addressing these issues.
82
Just-In-Time Production Systems
• Just-in-time (JIT) production systems take a
“demand pull” approach in which goods are only
manufactured to satisfy customer orders.
• Demand triggers each step of the production
process, starting with customer demand for a
finished product at the end of the process, to the
demand for direct materials at the beginning of the
process.
83
Materials Requirement
Planning (MRP)
• Materials requirements planning (MRP) systems
take a “push-through” approach that manufactures
finished goods for inventory on the basis of demand
forecasts.
• MRP predetermines the necessary outputs at each
stage of production.
• Inventory management is a key challenge in an
MRP system.
84
JIT And Inventory Management
Setup and Carrying Costs: The JIT Approach
• JIT reduces the costs of acquiring inventory to
insignificant levels by:
1. Drastically reducing setup time
2. Using long-term contracts for outside purchases
• Carrying costs are reduced to insignificant levels by
reducing inventories to insignificant levels
85
JIT And Inventory Management
Due-Date Performance: The JIT Solution
• Lead times are reduced so that the company can
meet requested delivery dates and to respond
quickly to customer demand.
• Lead times are reduced by:
– reducing setup times
– improving quality
– using cellular manufacturing
86
JIT And Inventory Management
Avoidance of Shutdown:
The JIT Approach
• Total preventive maintenance to reduce machine
failures
• Total quality control to reduce defective parts
• Cultivation of supplier relationships to ensure
availability of quality raw materials and
subassemblies
• The use of the Kanban system is also essential
87
JIT And Inventory Management
Discounts and Price Increases:
JIT Purchasing Versus Holding Inventories
• Careful vendor selection
• Long-term contracts with vendors
– Prices are stipulated (usually producing a significant
savings)
– Quality is stipulated
– The number of orders placed are reduced
88
Major Features of a JIT System
The five major features of a JIT system are:
• Organizing production in manufacturing cells
• Hiring and retaining multi-skilled workers
• Emphasizing total quality management
• Reducing manufacturing lead time and setup
Time
• Building strong supplier relationships
89
Benefits of JIT Systems
• Benefits of JIT production:
– Lower carrying costs of inventory
– Eliminating the root causes of rework, scrap, waste,
and manufacturing lead time.
90
Performance Measures and
Control in JIT Production
• To manage and reduce inventories, the
management accountant must design performance
measures to control and evaluate JIT production.
• What information may management accountants
use?
– Personal observation by production line workers and
managers
– Financial performance measures, such as inventory
turnover ratios
91
Performance Measures and
Control in JIT Production
• What are nonfinancial performance measures of
time, inventory, and quality?
– Manufacturing lead time
– Units produced per hour
– Days’ inventory on hand
– Total setup time for machines/Total manufacturing time
– Number of units requiring rework or scrap/Total number
of units started and completed
92
Backflush Costing
• A unique production system such as JIT often leads
to its own unique costing system.
• Organizing manufacturing in cells, reducing defects
and manufacturing lead time, and ensuring timely
delivery of materials enables purchasing,
production, and sales to occur in quick succession
with minimal inventories.
93
Backflush Costing
• Where journal entries for one or more stages in the
cycle are omitted, the journal entries for a
subsequent stage use normal or standard costs to
work backward to flush out the costs in the cycle
for which journal entries were not made.
94
Trigger Points
• Stage A: Purchase of direct materials
• Stage B: Production resulting in work in process
• Stage C: Completion of a good finished unit or
product
• Stage D: Sale of finished goods
95
Trigger Points
• Assume trigger points A, C, and D.
• This company would have two inventory accounts:
•
96
Type
Combined materials
and materials in work-inprocess inventory
Account Title
1.
Inventory: Material
and In-Process
Control
2. Finished goods
Finished Goods
Control
Trigger Points
• Assume trigger points A and D.
• This company would have one inventory
account:
•
Type
Account Title
Combines direct materials
Inventory
inventory and any direct
Control
materials in work-in-process
and finished goods inventories
97
Special Considerations in Backflush
Costing
• Backflush costing does not necessarily comply with
GAAP
– However, inventory levels may be immaterial, negating
the necessity for compliance
• Backflush costing does not leave a good audit trail
– the ability of the accounting system to pinpoint
the uses of resources at each step of the production
process
98
What is the Kanban System?
A Card System is used to monitor work-inprocess
• A withdrawal Kanban
• A production Kanban
• A vendor Kanban
99
The Withdrawal Kanban
Item No.
TVD-114
Item Name LCD Screen
Preceding Process
Computer Assembly
Computer Type Compaq 4/25
Box Capacity 12
Box Type AD-1942
100
Subsequent Process
Final Assembly
The Production Kanban
Item No.
TVD-114
Item Name LCD Screen
Computer Type Compaq 4/25
Box Capacity
12
Box Type ___AD-1942
101
Process
Computer Assembly
The Vendor Kanban
Item No.
TVD-114
Item Name Computer Chassis
Name of Receiving Company
Type Black Plastic
Box Capacity 12
Box Type Cardboard--Type
Time to Deliver
Receiving Gate North Receiving Gate
8:30 A.M., 12:30 P.M., 2:30 P.M.
Name of Vendor Hovey Supply Company
102
The Kanban Process
(7)
Withdrawal
Store
Lot with P-Kanban
LCD Assembly
(5) Attach
W-Kanban
(6) Signal
Remove
(4) P-Kanban
Attach to
Post
Production
Ordering Post
103
LCD Screen
Withdrawal
(1)
(1) Remove
W-Kanban
Attach to
Post
(2), (3)
Withdrawal Post
Final Assembly
Multiple Constrained Resource
To the Thurman Company example for a one
constrained resource, add the following additional
constraint: the market limits sales of the economy
disk player to 3,000 units.
Formulate the linear programming problem and
solve using the graphical method Let X1 = deluxe
models and X2 = economy models
Formulation: Max CM = 40X1 + 25X2
Subject to: 4X + 2X2 < 20,000
X2 < 3,000
104
Multiple Constrained Resource (continued)
X
2
10,000
4X 1 +2X 2< 20,000
3,000
D
C
X 2< 3,000
B
A
105
5,000
X
1
Multiple Constrained Resource
(continued)
Corner Point
X1
X2
CM = 40X1 + 25X2
A
0
0
0
B
5,000
0
$200,000
C*
3,500
3,000
$215,000
D
0
3,000
$75,000
* Point C is optimal
The X1 value of point c is found by substituting the second equation into the
first one like so:
$X1 + 2 (3,000) = 20,000
4X1 + 6,000 = 20,000
4X1 =14,000
X1 = 3,500
106
Theory of Constraints
Three Measures of Systems Performance
• Throughput
• Inventory
• Operating expenses
107
The Theory of Constraints
(continued)
Five steps to improve performance:
1. Identify an organization’s constraints.
2. Exploit the binding constraints.
3. Subordinate everything else to the decisions
made in Step 2.
4. Elevate the organization’s binding constraints.
5. Repeat the process as a new constraint emerges
to limit output.
108
Theory of Constraints
A sequential process of identifying and removing
constraints in a system.
Restrictions or barriers that impede
progress toward an objective
109
Theory of Constraints
• The theory of constraints emphasizes the
management of bottlenecks as the key to
improving the performance of the production
system as a whole.
110
Methods to Relieve Bottlenecks
• Eliminate idle time at the bottleneck operation
• Process only those parts or products that increase
throughput contribution, not parts or products that
will remain in finished goods or spare parts
inventories
• Shift products that do not have to be made on the
bottleneck operation to nonbottleneck processes,
or to outside processing facilities
111
Methods to Relieve Bottlenecks
• Reduce setup time and processing time at
bottleneck operations
• Improve the quality of parts or products
manufactured at the bottleneck operation
112
Theory of Constraints
• The objective of TOC is to increase throughput
contribution while decreasing investments and
operating costs.
• TOC considers a short-run time horizon and
assumes operating costs to be fixed costs.
113
The Drum-Buffer-Rope System
Raw Materials
Initial Process
Rope
Process A
Final Process
Process B
Finished Goods
Time
Buffer
Drummer Process
114
Process C
The Management of Capacity
• Managers can reduce capacity-based fixed costs
by measuring and managing unused capacity
• Unused Capacity is the amount of productive
capacity available over and above the
productive capacity employed to meet
consumer demand in the current period
115
Analysis of Unused Capacity
•
Two Important Features:
1. Engineered Costs result from a cause-and-effect
relationship between output and the resources used to
produce that output
2. Discretionary Costs have two parts:
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1. They arise from periodic (annual) decisions
regarding the maximum amount to be
incurred
2. They have no measurable cause-and-effect
relationship between output and resources
used
Managing Unused Capacity
• Downsizing (Rightsizing) is an integrated
approach of configuring processes, products,
and people to match costs to the activities that
need to be performed to operate effectively and
efficiently in the present and future
• Because identifying unused capacity for
discretionary costs is difficult, downsizing, or
otherwise managing this unused capacity, is
also difficult.
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End of Week
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