Activity Based Management

1. Activity Based Management Chapter Five

2. Definition • Activity Based Activities plus Value Added or • How to submit a successful and profitable BID

3. 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

4. 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.

5. 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

6. Non Value Added Examples • Pg 190 • Build up of Inventory • Queque Time • Production Moving Time • Worker Moving Time • Poor Quality

7. 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

8. Example • On - time delivery adds value • Rework and rewrite – non value added

9. 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

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

11. Chapter 5 Homework • 5.41 (60 Min) • 5.47 ( 40 min) • 5.54 ( 45 min) • Can you get the homework done faster.

12. Strategic Planning Part II • Submit online with excel spreadsheets • Due ???????