Transcript Activity-based costing and activity

Activity-based
costing and activitybased management
Lasse Arildslund
Anita Horgosi
Jørgen Solland
Julia Tsirulnikov
What is Activity-based costing?
Activity-based costing: is a costing approach that
assigns resource costs to a cost object based on
activities performed for the cost object
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This method enables traditionally fixed costs to be
distributed among product groups, converting them into
variable costs
Also gives non-financial information in opposition with
conventional costing system
1. October 2007
Management Accounting,
Professor I. Baranov
What is the objective of Activity-based
management?
Activity-based management: is a method of business
analysis that utilizes ABC information
 improving competitiveness, cost reduction, increasing
productivity and augmenting flexibility in meeting
customers needs
 Focuses on changing the way the work is carried out or
on the reasons why the work is performed
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Operational ABM: doing things right and performing
activities more efficiently
Strategic ABM: Choosing appropriate activities for the
operation
Management Accounting,
1. October 2007
Professor I. Baranov
How would you describe strategic ABM?
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Strategic ABM: Choosing appropriate activities for the
operation, „doing the right things”
Encompasses actions that shift the mix of activities away
from unprofitable applications
1. October 2007
Management Accounting,
Professor I. Baranov
Under which circumstances would you recommend
to consider introducing strategic ABM?
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Highly recommended for service sector organisations, and
companies with complex production processes and a wide portfolio
ABC is not a quick fix: requires patience and participation to see the
results cultures that reward only short-term results are not fertile
grounds for ABC
Most common characteristics of successful systems:
 High level of top management support and commitment
 Technical competence of the implementation team
 Effective change management
1. October 2007
Management Accounting,
Professor I. Baranov
In which respect is the policy of "doing right
things" under strategic ABM different from the
same policy under such management systems as
TQM, BPR, etc.?
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‘Management system in the management
system’
ABM is a more detail focused strategy, whereas
TQM and BPR are strategies on a macro level
1. October 2007
Management Accounting,
Professor I. Baranov
What is a difference, if any, in decision
making between companies adopted and
not adopted strategic ABM?
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Using also non-financial information
Time-consumption
Division of accounting activities
Ethical problems and sub-optimization
1. October 2007
Management Accounting,
Professor I. Baranov
How is strategic ABM related to
strategy implementation?
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ABC can be used as a basis for strategic
decision making
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E.g. regarding changes in the supply chain
and changes in target customers
1. October 2007
Management Accounting,
Professor I. Baranov
How would you calculate the costs
of introducing ABM in a company
and potential benefits?
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Predictable costs: Consultancy hours, ABC
software, Education
Unpredictable costs: Use of employees in the
development process, Organizational changes
Benefits: More efficent processes, Easier to
make rational decisions
1. October 2007
Management Accounting,
Professor I. Baranov
Thank you for your attention!
1. October 2007
Management Accounting,
Professor I. Baranov
Literature
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Baranov: Management Accounting for Multinational Companies
(reader, 2007, p.28-52)
Blocher, Chen, Cokins, Lin: Cost Management: A Strategic Emphasis
(2005, p.120-135)
Coombs, Hobbs, Jenkins: Management Accounting Principles and
Applications (2005, p.67-74)
Londerback, Holmen: Managerial Accounting (10th edition, 2003,
p.133)
Maher, Stickney, Weil: Managerial Accounting- an introduction to
concepts, methods&uses (9th edition, 2006, p.89-90)
1. October 2007
Management Accounting,
Professor I. Baranov