presentation on our capability on activity based costing by shriram value services(p) ltd helping...
TRANSCRIPT
Presentation on our Capability on Activity Based Costing
by
Shriram Value Services(P) Ltdhelping your business grow
About Our ABC CapabilityAbout Our ABC Capability
o A team of distinguished professionals, combining analytical expertise, academic excellence, industrial experience and exposure to corporate realities
o Integrated Consulting from strategy to implementation
o Committed to building long term relationships with clients, sharing risks and rewards
o Quick response time
o Goal oriented consulting with accountability for results
o Committed to creating organizational, value and lasting impact
ABC – An IntroductionABC – An Introduction
Shifts in concepts
From cost of manufacture to cost of total process
From cost accounting to yield control
From costing -led-pricing to pricing-led-costing
Cost Assignment View - A Snapshot
Ref: Glossary of Activity Based Management, edited by Norm Raffish and Peter B.B. Turney,(Arlington: CAM-I 1991)
Resources
Resource Cost
Assignment
ActivitiesPerformance
Measures
ResourceDrivers
Activity Cost Assignment
Cost Objects
Activity Drivers
Cost Drivers
Process view
What things
cost
Why things have cost
Better Decision Making
Conventional Costing Vs. ABC
Expenses
Cost Objects
ABC approach
Resources
Activities
Cost Objects
Economic Element
Work Performed
Product or service
Conventional costing
Resource Drivers
Activity Drivers
TRADITIONAL vs. ABCTRADITIONAL vs. ABC
S No
Category ACTIVITY BASED COSTING TRADITIONAL COSTING
1 COST POOLS While departments can serve as cost collection points the costs are further identified to activities performed within department through resource drivers
Departments serve as Cost pools (Collection point for costs)
2 ALLOCATION BASES ABC systems allocate costs to products, services, and other cost objects from the activity cost pools using allocationbases corresponding to costdrivers of activity costs
Traditional systems allocate costs toproducts using volume-based allocationbases: units, direct labour input,machine hours, revenue dollars
3 HIERARCHY OF COSTS Allows for non-linearity of costswithin the organization by explicitly recognizing that some costs are not caused by the number of units Produced
Generally estimates all of the costs ofan organization as being driven by the volume of product or service Delivered.
4 COST OBJECTS Focuses on estimating the costs of many cost objects of interest: units, batches, product lines, business processes, customers, and suppliers
Focuses on estimating the cost of asingle cost object—unit of productor service
TRADITIONAL vs. ABCTRADITIONAL vs. ABC
S No
Category ACTIVITY BASED COSTING TRADITIONAL COSTING
5 DECISION SUPPORT Because of the ability to align allocation bases with cost drivers, provides more accurate information to support managerial decisions
Because of the inability to align allocation bases with cost drivers, leadsto over costing and under costingproblems
6 COST CONTROL By providing summary costs of organizational activities, ABC allows for prioritization of cost- management efforts.
Cost control is viewed as a departmental exercise rather than a cross functional effort.
Peter F. Drucker on ABCArticle on the information Executives truly need
ABC integrates what were once several activities
• Value analysis
• Process analysis
• Quality management
• Costing
ABIS-Pro : Unique Functional Features
1. Software structured on the model expounded by CAM-I. Allows definition of activities, resources, cost elements, drivers, performance measures, products, cost objects and customers
2. Tight integration with financial accounting and other systems. Allows for modification of FAS data for cost purposes. Reconciliation between FAS and cost data is ensured at all levels.
3. Facilitates roll up of account codes into cost elements and cost elements into Cost element groups.
4. Drivers can be defined for allocation of resources / cost elements / activities as given below:1. - Department to Activity2. - Activity to Activity3. - Activity to Products4. - Activity to customers5. - Activity to Product segments6. - Activity to customer segments
5. Unique drivers can be attached to each cost element within an activity/ resource. Multistage allocation of costs possible. The drivers can be basic or weighted.
6. Multiple routes (Bill of activities) can be defined for each product. Hence a product can have multiple cost objects depending upon the sequence of activities required to produce and market the same.
7. User defined BOM which provides for capturing of Material consumption on Actual or Standard basis
ABIS-Pro : Unique Functional Features Contd. . .
8. Multiple views of activity costs – Hierarchy level, Process level, short term variability views etc facilitating operational ABMs
9. Takes activity costs to the desk of the process and activity owners enabling learning and improvement
10. Package is flexible to serve the needs of both Manufacturing and Service Organizations.
11. Takes into account the capacity utilization of various resources and provide the cost of unused capacity. Analysis of capacity into productive, unproductive and idle capacity with reasons thereof, is possible.
12. Easy to install and implement. Additions of activities / products/ drivers/ routes etc. can be made by the User with ease.
13. Strategies can be defined and linked to performance measures at the activity levels. Data from ABC system can be easily imported for Scorecard systems.
14. Multi dimensional analysis of profits – across periods, locations, product and product families, customer and customer families facilitating Strategic ABM
ABIS-Pro- A Unique, Versatile Solution
ABIS-Pro offers :
A Comprehensive and Holistic Activity Based Costing Model, which inter alia, provides information for the following:
1. Multi dimensional analysis of the profitability of products, product segments, customers and customer segments
2. Accurate costs of activities, processes, products and customers.
3. Information for critical management decision making on issues like
Product pricing and costs Customer profitability Business segment wise profitability and costs Automation of processes / activities Replacement of machinery vis a vis the impact of break downs on costs, quality, etc Outsourcing vis a vis doing an activity inside Customer and product pricing
Benefits flowing to Management from ABIS-PRO
Strategic Management
Highlights costs incurred as a result of product diversity, process diversity and customer diversity, thus enabling better decisions on
Product pricing and product mix
Make or buy decisions
Investment decisions
Analyzing the costs incurred for meeting the varying intensity of demands of different customers and the “cost to serve” those demands thus enabling better decisions on
improving customer profitability
retaining existing profitable customers
Operations management
Focus on process improvements and cost reduction by highlighting the cost of activities, activity efficiency in terms of performance indicators and yields
Effect on cost driver rate due to Underutilization of capacity
Identification of non value added activities and their costs
CAR & CAS4 Compliance
Takes care of compliance aspects concerning maintenance of Cost Accounting records u/s 209(1)(d) of Companies Act.
Segment cost reports take care of CAS 4 requirements under Central Excise
Benefits flowing to Management from ABIS-PRO
Types of Reports
OPERATIONAL
Cost/Activity Driver rate Analysis(standard
versus actual capacity)
Activity rate trend Analysis
Cost analysis (resource wise)
Cost analysis (Activity wise)
Identification of VA & NVA Activities
Cost Compliance & CAS 4 reports
Cost of Production & Sales Report
Capacity Utilization
WIP & FG Stock report
CAS 4 Certificate format
STRATEGIC
Business Segment wise profitability analysis Customer wise profitability analysis
◦ Segment◦ Dealer wise◦ Group & Non group
Product profitability reports◦ Product family◦ Product series◦ Product category
Multi dimensional Analysis reports[Customer, product, Cost & Activity combination]
ABIS PRO & TCM
Definition of BILL OF ACTIVITIES to be closely aligned to VALUE STREAM MAPPING efforts underway in the organization
Multiple views of activity costs – Hierarchy level, Process level, short term variability etc facilitating operational ABMs
Planning to take into account the capacity utilization of various resources and provide unused capacity. Analysis of capacity into productive, unproductivereasons thereof is possible
Focus on process improvements and cost reduction by highlighting the cost of activities, activity efficiency in terms of performance indicators & yields
Identification of NVAs and their costs is possible & is being attempted
Basic data requirements
1. Expense statement – Cost centre & Account code wise
2. Stage wise production
3. Sales data – Customer, product wise
4. Process related driver information – cycle time/labour particulars/weight/kwh
5. Utility related data – in house DG sets/Steam production/Compressor…
6. Support function drivers- Maintenance/quality/marketing/sourcing …..
7. Material consumption Particulars – (Product wise BOM)with Standard/ Actual
8. Packing & Freight Particulars
Implementation Methodology
1. Visit to Client facility
2. Study of Operations
3. Discussion with Plant Executives - understand nature of operations & extent of data availability
4. Discussions with Finance Team – understand existing Costing system in place & their expectations
5. Finalization of List of activities and drawing up of ACTIVITY Dictionary
6. Identification of drivers for process & support activities
7. Submission of Design Freeze report incorporating the above
8. Processing of information with bare minimum requirements
9. Discussion of results with Client & further refinements to Test results obtained on 1st run
10. Second run post incorporation of suggested improvements
11. Discussion of results of 2nd run with client
12. Training of Company executives & handing over of the Tool
For More details:
Anand Krishna
AGM Sales
Shriram Value Services P Ltd
44-42913024
+91-9940651224
Thank you