Bài giảng Financial & Managerial Accounting - Chapter 18: Costing and the Value Chain
The Value Chain—Focus on Core Operations The value chain is the set of activities and resources necessary to create and deliver products and services valued by customers.
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Costing and the Value ChainChapter 18R & D and DesignSuppliers and ProductionDistribution and MarketingCustomer ServiceThe value chain is the set of activities and resources necessary to create and deliver products and services valued by customers.The Value Chain—Focus on Core OperationsNon-value-added activities add cost without additional desirability, and can be eliminated without reducing quality or performance.Value-added activities add to product or service desirability in customers’ eyes. IdentifyEliminateNon-value-addedactivitiesValue and Non-value-Added ActivitiesAnalysis and ClassificationActivitiesValue and Non-value-Added ActivitiesNon-value- Added ActivitiesReduce or EliminateValue- Added ActivitiesContinually Evaluate and Improve Examples of non-value-added activities are:Storage of materials, work-in-process, or finished goods.Moving parts and materials in the factory.Waiting for work.Inspection.Get rid of them!Non-value-Added ActivitiesWhat’s the difference between activity-based costing and activity-based management?Activity-Based Management — Drive Out CostsActivity-based management focuses on managing activities to reduce costs.Activity-based costing establishes relationships between overhead costs and activities.Activity-Based Management — Drive Out CostsAnalyze activitiesCollect benchmark informationDetermine cost per unit of activityIdentify activity measuresCreate cost poolsIdentify activitiesActivity-based costingActivity-based managementABC: a Subset of Activity-Based ManagementChart activities needed to meet customer expectations.Use ABC to determine cost of activities.Classify all activities as value-added or non-value-added.Improve value-added activities and eliminate non-value-added activities.Activity-Based Management and the Value ChainLet’s move along to a new topic.The Target Costing Process — Creating Customer SatisfactionFocused on design.Consideration given to the entire value chain.Focused simultaneously on profit and cost planning.Driven by the customer.Target costing is aimed at the earliest stages of new product and service development.The Target Costing Process — Creating Customer SatisfactionConcept developmentPlanning and market analysisProduction design and value engineeringProduction and continuous improvementTarget priceProfit marginTarget costEstablishing the Target PriceAttaining the Target CostThe Target Costing ProcessPriceMajor Influences on Target PricingDevelop products that satisfy customer needs.Set target price using competitors’ prices and customers’ perceived value for product. Target price – Profit margin = Target costUse value engineering to find least costly combination of resources to meet customer needs. Developing target prices and target costs requires four steps:Components of the Target Costing ProcessLife- cyclecostingResearch, design, and developmentProductionMarketingProduct discontinued and customer support endsLife-Cycle Product Costing and PricingPricing must generate revenue to cover costs of all phases of product life cycle.Research, design, and developmentProductionMarketingProduct discontinued and customer support endsLife-Cycle Product Costing and PricingInvolve entire value chain in reducing costs while satisfying customer needs.An understanding of relationships between process components and costs is critical.A product’s functional characteristics to the customer are emphasized.A primary objective is reducing development time.ABC is used to determine changes that will reduce costs.Characteristics of Target Costing ProcessesLet’s move along to another topic.Just-in-time (JIT) Inventory ProceduresComplete products just in time to ship to customers.Complete parts just in time for assembly into products.Schedule production.Receive customer orders.Receive materials just in time for production.Just-In-Time (JIT) Inventory Less warehouse space neededReduced inventory carrying costsReduced risk of obsolete inventoryWith reduced inventories, quality must be emphasized to avoid production delays and late deliveries. Relationship Between JIT and Total Quality Management (TQM)More rapid response to customer ordersGreater customer satisfactionHigher quality productsLess warehouse space neededReduced inventory carrying costsReduced risk of obsolete inventoryRelationship Between JIT and Total Quality Management (TQM)A limited number of suppliers who will make on-time deliveries of quality materials.Quality that is “designed-in” and “manufactured-in” rather than “inspected-out”.A well-trained flexible work force.An efficient plant layout. Successful implementation of a JIT system requires:JIT, Supplier Relationships, and Product QualityManufacturing Cycle TimeProcess Time + Inspection Time + Storage and Waiting Time + Move TimeProductionStartedGoods ShippedOnly the process time is value-added time.Measures of Efficiency in a JIT SystemManufacturing Cycle TimeProcess Time + Inspection Time + Storage and Waiting Time + Move TimeProductionStartedGoods ShippedManufacturingEfficiencyRatio Value-added time Manufacturing cycle time=Measures of Efficiency in a JIT SystemIf cycletime goes up,costs maygo up, andservice andquality maygo down.Measures of Efficiency in a JIT SystemLet’s move to the last topic in the chapter.Total Quality Management and the Value ChainGreater customer satisfactionQuality products and servicesIncreased business volumeWhy is Quality Important? Prevention costsInspection of materials upon deliveryInspection of production processEquipment inspectionEmployee training Appraisal costsFinished goods inspectionField testing of productsComponents of the Cost of Quality Internal failure costs – defects discovered before delivery to customersScrap materialsReworkReinspection of reworkLost sales resulting from late deliveries Cost ReportComponents of the Cost of Quality External failure costs – defects discovered after delivery to customersWarranty repairsProduct liabilityMarketing costs to improve product imageLost sales due to poor product qualityComponents of the Cost of QualityCost of prevention and appraisal Internal and external failure costsComponents of the Cost of QualityCost of prevention and appraisal Internal and external failure costsUltimate Objective: Zero defects while minimizing all four quality cost categories.Components of the Cost of QualityPrevention and AppraisalExternal and Internal FailureTotal Cost of QualityLow QualityHigh QualityCost of QualityDirection of recent trend in industry.Components of the Cost of QualityTraditional managerial accounting systems may emphasize production quotas and cost minimization.Managers often find that emphasis on quality also increases productivity.Productivity and QualityI’m managing some quality time in a value-added activity.End of Chapter 18
