10 activity-and strategic based-responsibility accounting
TRANSCRIPT
PPT 10 -1
AGUS SISWANDI
01153056
MANAGEMENT ACCOUNTING
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Chapter Ten
Activity- and Strategic-BasedResponsibility Accounting
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Learning Objectives
Compare and contrast functional-based, activity-based, and strategic-based responsibility accounting systems.
Explain process value analysis.
Describe activity performance measurement.
Explain the basic features of the Balanced Scorecard.
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Responsibility Accounting Model
The responsibility accounting model is defined by four essential elements:
assigning responsibility
establishing performance measures or benchmarks
evaluating performance
assigning rewards
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Types of Responsibility Accounting
Management accounting offers the following three types of responsibility accounting systems.
Functional-based
Activity-based
Strategic-based
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Functional-Based Responsibility Accounting System
A functional-based responsibility accounting system assigns responsibility to organizational units and expresses performance measures in financial terms.
It is the responsibility accounting system that was developed when most firms were operating in relatively stable environments.
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Activity-Based Responsibility Accounting System
An activity-based responsibility accounting system assigns responsibility to processes and uses both financial and nonfinancial measures of performance.
It is the responsibility accounting system developed for those firms operating in continuous improvement environments.
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Responsibilityis Defined
OrganizationalUnit
FinancialOutcomes
Individualin Charge
OperatingEfficiency
Performance Measuresare Established
StandardCosting
CurrentlyAttainable
UnitBudgets
StaticStandards
Elements of a Functional-Based Responsibility Accounting System
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Performanceis Measured
ControllableCosts
FinancialMeasures
FinancialEfficiency
Actual versusStandard
Individuals are RewardedBased on
Financial Performance
Bonuses
SalaryIncreases
Promotions
ProfitSharing
Elements of a Functional-Based Responsibility Accounting System
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Responsibilityis Defined
Process
Financial
Team
ValueChain
Performance Measuresare Established
Dynamic
Value-Added
Optimal
ProcessOriented
Elements of an Activity-Based Responsibility Accounting System
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Performanceis Measured
QualityImprovement
TrendMeasures
TimeReductions
CostReductions
Individuals are RewardedBased on Multidimensional
Performance
Bonuses
SalaryIncreases
Promotions
Gain-sharing
Elements of an Activity-Based Responsibility Accounting System
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Strategic-Based Responsibility Accounting System
A strategic-based responsibility accounting system (Balanced Scorecard) translates the mission and strategy of an organization into operational objectives and measures for four different perspectives:
The financial perspective
The customer perspective
The process perspective
The infrastructure (learning and growth) perspective
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Responsibilityis Defined
Customer
Infrastructure
Financial
Process
Performance Measuresare Established
BalancedMeasures
Link toStrategy
CommunicateStrategy
Alignment ofObjectives
Elements of a Strategic-Based Responsibility Accounting System
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Performanceis Measured
CustomerMeasures
InfrastructureMeasures
FinancialMeasures
ProcessMeasures
Individuals are RewardedBased on Multidimensional
Performance
Bonuses
SalaryIncreases
Promotions
Gain-sharing
Elements of a Strategic-Based Responsibility Accounting System
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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.
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Cost Dimension
Process Dimension
Driver Analysis Activities Performance Analysis
Resources
Products andCustomers
Why? What? How Well?
Activity-Based Management Model
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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
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Activity Analysis
Activity analysis should produce four outcomes:
What activities are done?
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.
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Value-Added Activities
A discretionary activity is classified as value-added 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.
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Nonvalue-Added Activities
Non-Value-Added Activities are activities that add cost and impede
performance.
Scheduling
Moving
Waiting
Inspecting
Storing
Examples
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Activity Analysis
Activity elimination
Activity selection
Activity reduction
Activity sharing
Activity Analysis Can Reduce Costs in Four Ways:
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Activity Performance Measurement
Efficiency
Quality
Time
Three Dimensions of Activity Performance
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Measures of Activity Performance
Financial measures of activity efficiency include:
Value and nonvalue-added activity cost reports
Trends in activity cost reports
Kaizen standard setting
Benchmarking
Life-cycle costing
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Value- and Nonvalue-Added Reporting
Consider the following data:
Activity Activity Driver SQ AQ SP
Welding Welding hours 10,000 8,000 $40
Rework Rework hours 0 10,000 9
Setups Setup hours 0 6,000 60
Inspection # of inspections 0 4,000 15
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Value- Nonvalue-
Activity Added Costs Added Costs Actual Costs
Welding $400,000 $ 80,000 $480,000
Rework ---- 90,000 90,000
Setups ---- 360,000 360,000
Inspection ---- 60,000 60,000
Total $400,000 $590,000 $990,000
======== ======== ========
Value- and Nonvalue-AddedCost Report
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Nonvalue-Added Costs
Activity 2000 2001 Change
Welding $ 80,000 $ 50,000 $ 30,000
Rework 90,000 70,000 20,000
Setups 360,000 200,000 160,000
Inspection 60,000 35,000 25,000
Total $590,000 $355,000 $235,000
======== ======== ========
Trend Report: Nonvalue-Added Costs
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The Role of Kaizen Standards
Kaizen costing is concerned with reducing the costs of existing products and processes.
Controlling this cost reduction process is accomplished through the repetitive use of two major sub-cycles:
(1) the kaizen or continuous improvement cycle, and
(2) the maintenance cycle.
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Improving Performance ThroughBenchmarking
Organization A Organization BCost of Processing a
Purchase Order is
$20
Cost of Processing a
Purchase Order is
$15
Share
Information
How do we improve?
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Activity Capacity Management
Activity capacity is the number of times an
activity can be performed.
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Activity Capacity Variances
AQ = Activity capacity acquired (practical capacity)
SQ = Activity capacity that should be used
AU = Actual usage of the activity
SP = Fixed activity rate
SP x SQ$2,000 x 0
$0
SP x AQ$2,000 x 60$120,000
SP x AU$2000 x 40
$80,000ActivityVolume Variance
$120,000 U
UnusedCapacity Variance
$40,000 F
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Life-Cycle Cost Commitment Curve
Planning Design Testing Production Logistics
100
90
80
70
60
50
40
30
20
10
Cost Commitment CurveLife Cycle
Cost %
90 percent of life-cycle
costs are committed at this
point
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Target Costing
A target cost is the difference between the sales price needed to capture a predetermined market share and the desired per-unit profit.
Example: Current product specifications and the targeted market share call for a sales price of $250,000. The required profit is $50,000 per unit. The target cost is computed as follows:
Target cost = $250,000 - $50,000 = $200,000
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A Life-Cycle Costing Example
Unit Cost and Price Information for New Product
Unit production cost $6
Unit life-cycle cost 10
Unit whole-life cost 12
Budgeted unit selling price 15
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Life-Cycle Costing Example (continued)
Budgeted Costs
Development costs $200,000 ---- ---- $ 200,000
Product costs ---- $240,000 $360,000 600,000
Logistic costs ---- 80,000 120,000 200,000
Annual subtotal $200,000 $320,000 $480,000 $1,000,000
Post purchase costs ---- 80,000 120,000 200,000
Annual total $200,000 $400,000 $600,000 $1,200,000
====== ====== ====== ========
Units produced 40,000 60,000
Note: the post purchase costs are costs incurred by the customer and are not
included in the budgeted income e statement.
Item 2000 2001 2002Item Total
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Life-Cycle Costing Example(continued)
Annual Cumulative
Year Revenues Costs Income Income 2000 ---- $(200,000) $(200,000) $(200,000)
2001 $600,000 (320,000) 280,000 80,000
2002 900,000 (480,000) 420,000 500,000
Budgeted Product Income Statements
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Performance Report for Life-Cycle Costs
Actual Budgeted
Year Item Costs Costs Variance
2000 Development $190,000 $200,000 $10,000F
2001 Production 300,000 240,000 60,000U
Logistics 75,000 80,000 5,000F
2002 Production 435,000 360,000 75,000U
Logistics 110,000 120,000 10,000F
Analysis: Production costs were higher than expected because insertions of diodes and integrated circuits also drive costs (both production and post purchase costs).
Conclusion: The design of future products should try to minimize total insertions.
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Financial Perspective
The financial perspective has three strategic themes:
Revenue Growth
Cost Reduction
Asset Utilization
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Summary of Objectives and Measures:Financial Perspective
Objectives MeasuresRevenue Growth:Increase the number of new products Percentage of revenue from new products
Create new applications Percentage of revenue from new applications
Develop new customers and markets Percentage of revenue from new sources
Adopt a new pricing strategy Product and customer profitability
Cost Reduction:
Reduce unit product cost Unit product cost
Reduce unit customer cost Unit customer cost
Reduce distribution channel cost Cost per distribution channel
Asset Utilization:
Improve asset utilization Return on investment
Economic value added
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Summary of Objectives and Measures:Customer Perspective
Objectives MeasuresCore:Increase market share Market share (percentage of market)Increase customer retention Percentage growth of business from
existing customers Percentage of repeating customers
Increase customer acquisition Number of new customersIncrease customer satisfaction Ratings from customer surveysIncrease customer profitability Customer profitability
Performance Value:Decrease price PriceDecrease postpurchase costs Postpurchase costsImprove product functionality Ratings from customer surveysImprove product quality Percentage of returnsIncrease delivery reliability On-time delivery percentage
Aging scheduleImprove product image and reputation Ratings from customer surveys
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Summary of Objectives and Measures:Process Perspective
Objectives MeasuresInnovation:Increase the number of new products Number of new products vs. planned
Increase proprietary products Percentage revenue from proprietary products
Decrease new product development time Time to market (from start to finish)
Operations:Increase process quality Quality costs
Output yields
Percentage of defective units
Increase process efficiency Unit cost trends
Output/input(s)
Decrease process time Cycle time and velocity
MCE
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Summary of Objectives and Measures:Process Perspective (continued)
Objectives Measures
Postsales Service:Increase service quality First-pass yields
Increase service efficiency Cost trends
Output/input
Decrease service time Cycle time
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Process Perspective (continued)
DefinitionsCycle Time: The time required to produce one unit of product
Velocity: The number of units that can be produced in a given period of time (e.g., units per hour)
Manufacturing Cycle Efficiency (MCE) = Processing time
Processing time + Move Time + Inspection Time + Wait time
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Process Perspective (continued)
Example 1
A plant has the theoretical capability of producing 10,000 bikes per quarter. There are 20,000 production hours available each quarter. Compute the theoretical cycle time and velocity.
Cycle time = 20,000 hrs/10,000 bikes
= 2 hrs per bike
Velocity = 10,000 bikes/20,000 hours
= 0.5 bikes per hour
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Process Perspective (continued)
Example 2
A product has the following activities and times:
Processing (three departments): 10 hours
Moving (four moves): 3 hours
Waiting (for the second and third processes): 8 hours
Storage (before delivery): 19 hours
Compute MCE.
MCE = 10/(10+3+8+10) = 10/40
= 0.25 or 25%
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Summary of Objectives and Measures:Learning and Growth Perspective
Objectives MeasuresIncrease employee capabilities Employee satisfaction ratings
Employee turnover percentages
Employee productivity (revenue/employee)
Hours of training
Strategic job coverage ratio (percentage of critical job requirements filled)
Increase motivation and alignment Suggestions per employee
Suggestions implemented per employee
Increase information systems capabilities Percentage of processes with real-time feedback capabilities
Percentage of customer-facing employees with on-line access to customer and product information
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End of Chapter 10