5-1 value chain analysis and activity-based management c hapter 5 prepared by douglas cloud...
TRANSCRIPT
![Page 1: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/1.jpg)
5-1
Value Chain Value Chain Analysis and Analysis and
Activity-Based Activity-Based ManagementManagement
Value Chain Value Chain Analysis and Analysis and
Activity-Based Activity-Based ManagementManagement
CChaptehapterr
55
Prepared by Douglas Cloud
Pepperdine University
Prepared by Douglas Cloud
Pepperdine University
![Page 2: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/2.jpg)
5-2
1. Describe strategic cost management.2. Discuss the importance of the value chain approach
to analyzing decision alternatives.3. Analyze an organization’s internal value chain,
dividing it into process and activities.4. Explain how process management can help improve
organizational performance.5. Determine the costs of individual activities and the
activity costs associated with various cost objectives.
ObjectivesObjectivesObjectivesObjectives
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
After studying this After studying this chapter, you should chapter, you should
be able to:be able to:
![Page 3: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/3.jpg)
5-3
Strategic Cost ManagementStrategic Cost ManagementStrategic Cost ManagementStrategic Cost Management
Strategic cost management is defined as making decisions concerning specific cost
drivers within the context of an organization’s business strategy, its internal value chain, and its place in a larger value chain stretching from the development and
use of resources to the final consumers.
![Page 4: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/4.jpg)
5-4
Elements of a Value-Chain for a Beverage-Packaging Plant
First level: Business entities
Timber Farm
PulpMill
Paperboard Manufacturer
Paperboard Converter
Beverage Company
Grocery Store
Final Customer
to second level
![Page 5: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/5.jpg)
5-5
Second level: Processes
Procurement Storage Display
from first level
Sell to customer
Third level: Activities
Preparing purchase
order
Receiving order
Inspecting delivery
Moving to
Storage
Paying invoice
![Page 6: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/6.jpg)
5-6
Usefulness of the Value Usefulness of the Value Chain PerspectiveChain Perspective
Usefulness of the Value Usefulness of the Value Chain PerspectiveChain Perspective
The goal of maximizing final customer value while
minimizing final customer cost leads organizations to
examine internal and external links in the value chain.
![Page 7: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/7.jpg)
5-7
The Value Chain Perspective The Value Chain Perspective Fosters Supplier-Buyer Fosters Supplier-Buyer
PartnershipsPartnerships
The Value Chain Perspective The Value Chain Perspective Fosters Supplier-Buyer Fosters Supplier-Buyer
PartnershipsPartnerships
Value Chain Perspective Focuses Value Chain Perspective Focuses on Processes, Not Departmentson Processes, Not Departments
Value Chain Perspective Focuses Value Chain Perspective Focuses on Processes, Not Departmentson Processes, Not Departments
![Page 8: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/8.jpg)
5-8
The Value-Chain PerspectiveThe Value-Chain Perspective
Comprehensive
Focused on the final customers
Strategic
Basic for partnerships between vendors and customers
![Page 9: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/9.jpg)
5-9
Structural Cost DriversStructural Cost DriversStructural Cost DriversStructural Cost Drivers
Structural Cost Drivers
Organizational Cost Drivers
Activity Cost Drivers
Making fundamental choices about the size and scope of operations
and technologies involved.
Making choices concerning the organization of
processes and activities
Performing specific units of work (activities) to serve
customer needs.
![Page 10: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/10.jpg)
5-10
GoalsLocationScaleScopeTechnologyComplexity
Structural cost drivers include decisions affecting--
Structural Cost DriversStructural Cost Drivers
![Page 11: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/11.jpg)
5-11
Organization of processes Layout efficiency Product configuration Exploitation of linkages in
the value chain Work force involvement Attitudes toward total
quality management
Organizational cost drivers include decisions affecting--
Structural Cost DriversStructural Cost Drivers
![Page 12: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/12.jpg)
5-12
Measures of ActivityMeasures of ActivityMeasures of ActivityMeasures of Activity
Preparing purchase
order
Receiving delivery
Inspecting delivery
Moving to
storage
Paying invoice
Number of orders
Number of orders
Number of units in order
Units in order
Number of orders
![Page 13: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/13.jpg)
5-13
Generic Internal ProcessesGeneric Internal Processes
OperationsInbound Logistics
Outbound Logistics
Marketing and Sales Service
Source: The basic idea for this exhibit is based on concepts contained in Michael E. Porter, Competitive Advantage (New York: The Free Press, 1985), p. 37.
Supporting Processes: Accounting, Design, Finance, Supporting Processes: Accounting, Design, Finance, Human Resources, Maintenance, and so forth.in Human Resources, Maintenance, and so forth.in
Supporting Processes: Accounting, Design, Finance, Supporting Processes: Accounting, Design, Finance, Human Resources, Maintenance, and so forth.in Human Resources, Maintenance, and so forth.in
![Page 14: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/14.jpg)
5-14
Representative ActivitiesRepresentative ActivitiesRepresentative ActivitiesRepresentative Activities
• Processing employee paychecks
• Developing budgets
• Determining activity costs
• Verifying the existence of recorded assets
AccountingAccounting
![Page 15: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/15.jpg)
5-15
• Developing specifications for products or services delivered to customers
Developing specifications for procedures to produce products or services
DesignDesign
Representative ActivitiesRepresentative ActivitiesRepresentative ActivitiesRepresentative Activities
![Page 16: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/16.jpg)
5-16
• Signing checks
• Obtaining financial resources
FinanceFinance
Representative ActivitiesRepresentative ActivitiesRepresentative ActivitiesRepresentative Activities
![Page 17: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/17.jpg)
5-17
Human Resources
•Hiring employees•Training employees
•Repairing equipment•Cleaning buildings
Representative ActivitiesRepresentative ActivitiesRepresentative ActivitiesRepresentative Activities
Maintenance
![Page 18: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/18.jpg)
5-18
Process MapProcess MapProcess MapProcess Map
It is a schematic overview of all the activities within a
process.
It is a schematic overview of all the activities within a
process.
![Page 19: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/19.jpg)
5-19
Accept shipmentyes
no
Process MapProcess MapProcess MapProcess Map
Is there anexisting order
Reject shipment
![Page 20: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/20.jpg)
5-20
Process MapProcess MapProcess MapProcess Map
Activity: Placing a Purchase Order
Go to file
cabinet
Open drawer containing blank purchase orders
Remove one purchase
order
Close drawer
Return to desk
![Page 21: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/21.jpg)
5-21
In cIn continuous improvementontinuous improvement, an , an organization’s employees organization’s employees
constantly evaluate products, constantly evaluate products, services, and processes seeking services, and processes seeking
ways to do better.ways to do better.
In cIn continuous improvementontinuous improvement, an , an organization’s employees organization’s employees
constantly evaluate products, constantly evaluate products, services, and processes seeking services, and processes seeking
ways to do better.ways to do better.wawa
![Page 22: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/22.jpg)
5-22
Activity-based costing (ABC) involves determining the cost of activities and tracing their
costs to cost objectives on the basis of the cost objectives utilization of units of activity.
Activity-based costing (ABC) involves determining the cost of activities and tracing their
costs to cost objectives on the basis of the cost objectives utilization of units of activity.
Activity-Based CostingActivity-Based CostingActivity-Based CostingActivity-Based Costing
![Page 23: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/23.jpg)
5-23
Activity-Based CostingActivity-Based CostingActivity-Based CostingActivity-Based Costing
Activity-based costing is used to develop cost information for the following (and other) purposes in which management might be interested:
The cost of processing a purchase order to assist in continuous improvement.
The cost of a product or service to determine the profitability of the product or service.
The cost of alternative long-distance telephone carriers to identify the carrier with the best combination of quality, service, and cost.
![Page 24: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/24.jpg)
5-24
Activities performed to fill customer needs consume resources that cost money.
Customer Activitiesserved by
Resources
consume
Costshave cost
money
Activity-Based CostingActivity-Based CostingActivity-Based CostingActivity-Based Costing
![Page 25: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/25.jpg)
5-25
The cost of resources consumed by activities should be assigned to cost objectives.
Costs Resourcesassigned
to
Activities Pools
assigned to
Cost Objectives
Reassigned to
Activity-Based CostingActivity-Based CostingActivity-Based CostingActivity-Based Costing
![Page 26: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/26.jpg)
5-26
1. Identifying activities.2. Assigning costs to activities.3. Determining the basis (activity cost driver) for
assigning the cost of activities to cost objectives.4. Determining the cost per unit of activity.5. Reassigning costs from the activity to the cost
objective in the basis of the cost objective’s volume of consumption of activities.
Operationalizing the two-stage model requires the following:
Activity-Based CostingActivity-Based CostingActivity-Based CostingActivity-Based Costing
![Page 27: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/27.jpg)
5-27
Detroit Metal Shop produces custom metal parts in response to customer job orders. Inbound logistics
and operations for the firm is as follows:
Place Place purchase purchase
orderorder
Receive Receive materialsmaterials
Setup Setup each jobeach job
Perform Perform activitiesactivities
Inbound Logistics
Purchasing Department
Operations
Machining Department
ContinuedContinued
![Page 28: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/28.jpg)
5-28
PolishPolish
Operations
Finishing Department
PackPack
![Page 29: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/29.jpg)
5-29
Monthly Costs: Purchasing Dept.Monthly Costs: Purchasing Dept.Monthly Costs: Purchasing Dept.Monthly Costs: Purchasing Dept.
Placing Purchase Receiving Orders Materials
Purchasing agent salaries ($4,000 x 3) $12,000
Receiving room employees ($3,000 x 5) $15,000
Supervisor:($6,000 x .38 time with purchasing agent) 2,250($6,000 x .63 of time with receiving agent) 3,750
Other costs:($12,000 x 0.15 purchasing space) 1,800($12,000 x 0.85 receiving space) 10,200
Total $16,050 $28,950
![Page 30: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/30.jpg)
5-30
Refining into Three ActivitiesRefining into Three ActivitiesRefining into Three ActivitiesRefining into Three Activities Placing Verifying Unloading/ Purchase Purchase Unpacking Orders Orders Inspecting
Purchasing agent salaries ($4,000 x 3) $12,000
Receiving room employees: ($3,000 x 5 x 0.20 verifying time) $ 3,000($3,000 x 5 x 0.80 unloading/ unpacking/inspect time) $12,000
ContinuedContinuedContinuedContinued
![Page 31: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/31.jpg)
5-31
Placing Verifying Unloading/ Purchase Purchase Unpacking Orders Orders Inspecting
Carried forward $12,000 $ 3,000 $12,000Supervisor:
($6,000 x .38 of time with purchasing agents) 2,250($6,000 x .63 of time with receiving employees x 0.20 employees’ verifying time) 750($6,000 x .63 of time with receiving employees x 0.80 employees’ unloading/ unpacking/inspecting time) 3,000
ContinuedContinuedContinuedContinued
![Page 32: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/32.jpg)
5-32
Carried forward $14,250 $ 3,750 $15,000Other costs*:
($12,000 x 0.15 purchasing space) 1,800($12,000 x 0.85 receiving space) 10,200
Total $16,050 $ 3,750 $25,200
* Because the purchase order is verified before delivery trucks are unloaded, the space devoted to this activity is assumed to be insignificant.
Placing Verifying Unloading/ Purchase Purchase Unpacking Orders Orders Inspecting
![Page 33: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/33.jpg)
5-33
Cost per Unit of ActivityCost per Unit of ActivityCost per Unit of ActivityCost per Unit of Activity
Cost per unit of activity cost driver
Cost of activity
Units of cost driver=
Cost per unit of activity cost driver
$16,050
200=
Placing Purchasing Orders
Cost per unit of activity cost driver
$80.25 per order=
![Page 34: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/34.jpg)
5-34
Cost per unit of activity cost driver
Cost of activity
Units of cost driver=
Cost per unit of activity cost driver
$3,750
200=
Verifying Purchasing Orders
Cost per unit of activity cost driver
$18.75 per order=
Cost per Unit of ActivityCost per Unit of ActivityCost per Unit of ActivityCost per Unit of Activity
![Page 35: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/35.jpg)
5-35
Cost per unit of activity cost driver
Cost of activity
Units of cost driver=
Cost per unit of activity cost driver
$25,200
$800,000 (direct materials)
=
Unloading/Unpacking/Inspecting
Cost per unit of activity cost driver
0.0315 per dollar=
Cost per Unit of ActivityCost per Unit of ActivityCost per Unit of ActivityCost per Unit of Activity
![Page 36: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/36.jpg)
5-36
Assigning Activity CostsAssigning Activity CostsAssigning Activity CostsAssigning Activity Costs Purchase Purchase Order 1 Order 2 Total
Direct materials costs $5,000.00 $3,500.00 $8,500.00
Activity costs:
Placing purchase order $ 80.25 $ 80.25 $ 160.50
Verifying purchase order 18.75 18.75 37.50
Unloading/unpacking/inspecting ($5,000 x 0.0315) 157.50
($3,500 x 0.0315) 110.25 267.75
Total 256.50 209.25 465.75
Total costs assigned to costobjective $5,256.50 $3,709.25 $8,965.75
![Page 37: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/37.jpg)
5-37
Purchasing Department
$45,000
Resource Costs
Placing Placing purchase purchase
orders orders $16,050$16,050
VerifyingVerifyingpurchase purchase
orders orders $3,750$3,750
Unloading/Unloading/unpacking/ unpacking/ inspectinginspecting $25,200$25,200
Activity Cost Pool
Purchase Purchase Order 1 Order 1
$5,256.50$5,256.50
Cost Objectives
Purchase Purchase Order 2 Order 2
$3,709.25$3,709.25
Other Other purchase purchase
orders orders $36,034.25$36,034.25
![Page 38: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/38.jpg)
5-38
Detroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop Example
The following activity costs were determined in the Machining and Finishing Departments:
Machining Department:Setup
$ 250Conversion ($100 x 35MH)
3,500Finishing Department:
Polish ($50 x 20 labor hours)
1,000Pack ($5 x 450 kilograms)
2,250Total cost assigned to cost object
$7,000
![Page 39: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/39.jpg)
5-39
Machining Department
Finishing Department
SetupSetup ConversionConversion PolishPolish PackPack
Job102Job102 Other jobsOther jobs
Detroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop Example
![Page 40: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/40.jpg)
5-40
Detroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop ExampleDetroit Metal Shop ExampleDirect materials:
Order 1 $5,000.00
Order 2 3,500.00$ 8,500.00
Inbound logistics:Placing purchase order $ 160.50Verifying purchase order 37.50Unloading/unpacking/inspecting 267.75465.75
Operations:Setup $ 250.00Conversion 3,500.00Polish 1,000.00Pack 2,250.00 7,000.00
Total cost assigned to Job 102$15,965.75
![Page 41: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/41.jpg)
5-41
Two-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing Method
Direct Resource Costs
Costs of resources directly Costs of resources directly traceable to cost objectivestraceable to cost objectives
To Objective 1, 2, 3, through n costs
![Page 42: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/42.jpg)
5-42
Two-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing Method
Stage 1: Indirect resources costs are assigned to activity pools.
Cost of Resource 1
Cost of Resource 2
Cost of Resource 3
Cost of Resource n
Activity 1
Activity 2
Activity 3
Activity 4
Activity n
ContinuedContinuedContinuedContinued
![Page 43: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/43.jpg)
5-43
Stage 2: Activity costs are reassigned to cost objectives using an activity drivers.
Activity 1
Activity 2
Activity 3
Activity 4
Activity n
Two-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing MethodTwo-Stage Activity Based Costing Method
Objective nObjective 2 Objective 3Objective 1
from Direct Resource Costs
![Page 44: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/44.jpg)
5-44
Additional ConsiderationsAdditional ConsiderationsAdditional ConsiderationsAdditional Considerations
Because activity-based costing is not guided by financial accounting
requirements, there is wide variation in the components of ABC systems.
Because activity-based costing is not guided by financial accounting
requirements, there is wide variation in the components of ABC systems.
![Page 45: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/45.jpg)
5-45
Reducing Non-Value-Reducing Non-Value-Added ActivitiesAdded Activities
Reducing Non-Value-Reducing Non-Value-Added ActivitiesAdded Activities
• Movement
• Waiting
• Setup
• Inspection
![Page 46: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/46.jpg)
5-46
Continuous improvement and
process reengineering seek to minimize non-value-added activities.
Reducing Non-Value-Reducing Non-Value-Added ActivitiesAdded Activities
Reducing Non-Value-Reducing Non-Value-Added ActivitiesAdded Activities
![Page 47: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/47.jpg)
5-47
The ABC/ABM CrossThe ABC/ABM Cross
Process View (ABM)
Cost Assignment View (ABC)
Resources (What is used to do
work?)
Activities (Work)
Cost Objects (The object of
work)
Cost Drivers (Why is work
done?)
Performance Measures
(How well is work done?)
![Page 48: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/48.jpg)
5-48
CChapter
55
The The EndEndThe The EndEnd
![Page 49: 5-1 Value Chain Analysis and Activity-Based Management C hapter 5 Prepared by Douglas Cloud Pepperdine University](https://reader030.vdocuments.site/reader030/viewer/2022012906/56649ec05503460f94bcb87f/html5/thumbnails/49.jpg)
5-49