MANAGEMENT ACCOUNTING
AGUS SISWANDI 01153056
PPT 10 -1
Chapter Ten
Activity- and Strategic-Based Responsibility Accounting
PPT 10 -2
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. PPT 10 -3
Responsibility Accounting Model The responsibility accounting model is defined by four essential elements:
assigning responsibility
establishing performance measures or benchmarks
evaluating performance
assigning rewards
PPT 10 -4
Types of Responsibility Accounting
Management accounting offers the following three types of responsibility accounting systems.
Functional-based
Activity-based
Strategic-based
PPT 10 -5
Functional-Based Responsibility Accounting System A functional-ba functional-based sed responsibility accounting system assigns responsibility to organizational units and expresses performance measures in financial terms. It is the responsibility responsibility accounting system that was developed when most firms were operating in relatively stable environments.
PPT 10 -6
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 responsibility accounting system developed for those firms operating in continuous improvement environments.
PPT 10 -7
Elements of a Functional-Based Responsibility Accounting System Individual in Charge
Organizational Unit Responsibility is Defined
Operating Efficiency
Financial Outcomes
Unit Budgets
Standard Costing
Static Standards
Performance Measures are Established
Currently Attainable PPT 10 -8
Elements of a Functional-Based Responsibility Accounting System Financial Efficiency
Controllable Costs Performance is Measured
Actual versus Standard
Financial Measures
Promotions
Profit Sharing
Bonuses Individuals are Rewarded Based on Financial Performance
Salary Increases PPT 10 -9
Elements of an Activity-Based Responsibility Accounting System Process
Team Responsibility is Defined Value Chain
Financial
Optimal
Dynamic Performance Measures are Established
Process Oriented
ValueAdded PPT 10 -10
Elements of an Activity-Based Responsibility Accounting System Time Reductions
Quality Improvement Performance is Measured
Cost Reductions
Trend Measures
Promotions
Bonuses
Gainsharing
Individuals are Rewarded Based on Multidimensional Performance
Salary Increases PPT 10 -11
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 PPT 10 -12
Elements of a Strategic-Based Responsibility Accounting System Customer
Financial Responsibility is Defined Process
Communicate Strategy Alignment of Objectives
Infrastructure
Performance Measures are Established
Balanced Measures Link to Strategy PPT 10 -13
Elements of a Strategic-Based Responsibility Accounting System Financial Measures
Customer Measures Performance is Measured
Process Measures
Infrastructure Measures
Promotions
Bonuses
Gainsharing
Individuals are Rewarded Based on Multidimensional Performance
Salary Increases PPT 10 -14
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.
PPT 10 -15
Activity-Based Management Model Cost Dimension
Resources
Process Dimension
Driver Analysis Why?
Activities What?
Performance Analysis How Well?
Products and Customers PPT 10 -16
Process Value Analysis Process value analysis is fundamental to activitybased 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: with: Driver analysis Activity analysis Performance measurement measurement PPT 10 -17
Activity Analysis
Activity analysis should produce four outcomes: What activities are done? How many people perform the the activities? The time and resources required to perform the activities. An assessment of the value of the activities activities to the organization, including a recommendation to select and keep only those that add value .
PPT 10 -18
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.
PPT 10 -19
Nonvalue-Added Activities Non-Value-Added Non-Value-Added Activities are activities that add cost and impede performance.
Scheduling Moving Waiting
Examples
Inspecting Storing
PPT 10 -20
Activity Analysis Activity Analysis Analysis Can Reduce Costs in Four Ways: Ways:
Activity elimination Activity selection selection Activity reduction Activity sharing
PPT 10 -21
Activity Performance Measurement
Three Dimensions of Activity Performance
Efficiency Quality Time
PPT 10 -22
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 PPT 10 -23
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
PPT 10 -24
Value- and Nonvalue-Added Cost Report
Activity
ValueAdded Costs
NonvalueAdded 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
$400,000
$590,000
$990,000
Total
========
========
======== PPT 10 -25
Trend Report: Nonvalue-Added Costs
Activity
Nonvalue-Added Costs 2000 2001 Change
Welding
$ 80,000
$ 50,000
$ 30,000
Rework
90,000
70,000
20,000
Setups
360,000
200,000
160,000
60,000
35,000
25,000
$590,000
$355,000
$235,000
Inspection Total
========
========
======== PPT 10 -26
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 use of two major sub-cycles: (1) the kaizen or continuous improvement cycle, and (2) the maintenance cycle.
PPT 10 -27
Improving Performance Through Benchmarking Organization A Cost of Processing a
Share Information
Organization B Cost of Processing a
Purchase Order is
Purchase Order is
$20
$15
How do we improve?
PPT 10 -28
Activity Capacity Management
Activity capacity is the number of times an activity can be performed.
PPT 10 -29
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
Activity Volume Variance $120,000 U
SP x AQ $2,000 x 60 $120,000
Unused Capacity Variance $40,000 F
SP x AU $2000 x 40 $80,000
PPT 10 -30
Life-Cycle Cost Commitment Curve Cost Commitment Curve Life Cycle Cost % 100 90 80 70
90 percent of life-cycle
60
costs are committed at this
50
point
40 30 20 10 Planning
Design
Testing
Production
Logistics
PPT 10 -31
Target Costing A target cost is the difference between the sales s ales 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 required profit is $50,000 per unit. unit. The target cost is computed as follows: Target cost = $250,000 - $50,000 = $200,000
PPT 10 -32
A Life-Cycle Costing Example Unit Cost and Price Information for New Product
Unit production cost
$6
Unit life-cycle cost Unit whole-life cost
10 12
Budgeted unit selling price
15
PPT 10 -33
Life-Cycle Costing Example (continued) Budgeted Costs Item
2000
2001
2002
Item Total
Development costs Product costs
$200,000 ----
---$240,000
---$360,000
$ 200,000 600,000
Logistic costs Annual subtotal
---$200,000
80,000 $320,000
120,000 $480,000
200,000 $1,000,000
----
80,000
120,000
200,000
$200,000 ======
$400,000 ====== 40,000
Post purchase costs Annual total Units produced
$600,000 $1,200,000 ====== ======== 60,000
Note: the post purchase costs are costs incurred by the customer and are not included in the budgeted income e statement. PPT 10 -34
Life-Cycle Costing Example (continued) Budgeted Product Income Statements Year
Revenues
Costs
Annual Income
Cumulative 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
PPT 10 -35
Performance Report for Life-Cycle Costs Year
Item
2000 2001
Development Production Production Logistics Production Production Logistics
2002
Actual Costs
Budgeted Costs
Variance
$190,000 300,000 75,000 435,000 110,000
$200,000 240,000 80,000 360,000 120,000
$10,000 60,000 5,000 75,000 10,000
F U F U F
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.
PPT 10 -36
Financial Perspective The financial perspective has three strategic themes:
Revenue Growth
Cost Reduction
Asset Utilization
PPT 10 -37
Summary of Objectives and Measures: Financial Perspective Objectives
Measures
Revenue Growth: Increase the number of new products
Percentage of revenue from new products
Create new applications Develop new customers and markets
Percentage of revenue from new applications 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 Reduce distribution channel cost
Unit customer cost Cost per distribution channel
Asset Utilization:
Improve asset utilization
Return on investment Economic value added PPT 10 -38
Summary of Objectives and Measures: Customer Perspective Objectives
Measures
Core: Increase market share Increase customer retention
Increase customer acquisition Increase customer satisfaction Increase customer profitability
Market share (percentage of market) Percentage growth of business from existing customers Percentage of repeating customers Number of new customers Ratings from customer surveys Customer profitability
Performance Value: Value: Decrease price Decrease postpurchase costs Improve product functionality Improve product quality Increase delivery reliability Improve product image and reputation
Price Postpurchase costs Ratings from customer surveys Percentage of returns On-time delivery percentage Aging schedule Ratings from customer surveys PPT 10 -39
Summary of Objectives and Measures: Process Perspective Objectives
Measures
Innovation: 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
Increase process efficiency
Quality costs Output yields Percentage of defective units Unit cost trends Output/input(s)
Decrease process time
Cycle time and velocity MCE
PPT 10 -40
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
PPT 10 -41
Process Perspective (continued) Definitions Cycle 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 Manufacturing Cycle Efficiency (MCE) =
Processing time Processing time + Move Time + Inspection Time + Wait time
PPT 10 -42
Process Perspective (continued) Example 1 A plant has the theoretical theoretical capability of producing 10,000 bikes 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
PPT 10 -43
Process Perspective (continued) Example 2 A product has the following activities and times: Processing (three departments): departments):
10 hours
Moving (four moves): 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% PPT 10 -44
Summary of Objectives and Measures: Learning and Growth Perspective Objectives Increase employee capabilities
Measures Employee satisfaction ratings Employee turnover percentages Employee productivity (revenue/employee) (revenue/employee) Hours of training Strategic job coverage ratio (percentage of critical job requirements 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
PPT 10 -45
End of Chapter 10
PPT 10 -46
