Activity-Based

Management
Presented by:
Zainal Abidin, S.E.,M.Ak.,Ak
Learning objectives
1. Describe acitivity-based management (ABM) and explain its
relationship to activity-based costing (ABC)
2. Explain process value analysis
3. Describe activity performance measurement
4. Describe activity-based customer and supplier costing
Activity-Based Management: A Conceptual
Overview
• Activity accounting is an essential factor for operationalizing
continous improvement.
• 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.
By Process Value Analysis By Activity-Based Costing

LO 1 Describe ABM and explain its relationship to ABC

ABM
Implemen
tation The two steps common to ABC & PVA

Model

encouraging
& supporting
continuous accurate cost
improvement information
Process Value Analysis (PVA)
• Process value analysis is concerned with:
(1) Driver analysis
a. Activity Input are the resources consumed by the activity in producing its
output
b. Activity Output is the result or product of an activity.
If the activity is writing a computer program, identify of activity input and
output !
c. Root causes are the most basics causes for an acitivity being performed.
analysis may
Activity Activity Activity
Input (moving Output
material)

An analysis may reveal that the root cause of HOW TO

the cost of moving materials is plant layout IMPROVEMENT ?
LO 2 Explain Process Value Analysis
Process Value Analysis (PVA)
2) Activity analysis
is the process of identifying, describing,
and evaluating the activities an
organization performs

Activity analysis should produce four outcomes:

1.What activities are done ?
2.How many people perform the activities ?
3.The time and resources required to perform the activites ?
4.An assesment of the value of the activities to the organization ?

Acitivities can be classified as:

5.Value-added
LO 2 Explain Process Value Analysis
Process Value Analysis (PVA)
3) Acitivity Performance Measurement
Measures of activity performance center on three major dimensions:
a) Efficiency focuses on relationsip of activity inputs & outputs
b) Quality, doing the activity right the first time it is performed
c) Time, Longer times usually mean more resource consumption and
less ability to respond to customer demands

LO 3 Describe Activity Performance Measurement

Value-Added Activity
How to classified an value-added activity ?
1. The activity produced a change of state
2. The change of state was not achievable by preceding activities
3. The activity enables other activities to be performed (menjadi syarat aktivitas
berikutnya)
Example:
 RTP, Inc., manufactures hydraulic cylinders. The three main activities are: cutting
road, welding, inspecting.
 The value-added-activity: cutting road and welding
 Non-value-added activity : inspecting

LO 3 Describe Activity Performance Measurement

Value-Added vs Non-Value-Added Activity
Consider the following four production activities for RTP, Inc.: welding, reworking defective
products, setting up equipment, and inspecting purchased components.

Value-Added
Non-Value-Added
Value-Added
Non-Value-Added

1. Classifies the costs for the four activities as value-added or non-value-

added.
2. Calculate the value-added and non-valued added cost !

SQ = Standard Quantity (The value-added output level for an activity)

AQ = Actual Quantities (The actual quantity used)
SP = Price Standard (The standard price per unit of activity output measure)
Value-Added vs Non-Value-Added Activity
Formula for VA and Non-VA
Activity Based-Customer Costing
• Customers can consume customer-driven activities in different proportions.
Sources of customer diversity include such things as:
1. Order frequency
2. Delivery frequency
3. Geographic distance
4. Sales & promotional support
5. Engineering support

 Cost of Customer Service to High profit Low profit

Customer
 Manufacturing cost are
assigned to product
Acitivity-Based Customer Costing
• Suppose that RTP, Inc., produces some small parts for 11 major buyers. ABC is
used to assign production costs to products. Of the 11 customers, one accounts
for 50 percent of the sales, with the remaining 10 account for the rest of the
sales. Orders placed by the 10 smaller customers are about the same size. Data
concerning RTP’s customer activity follow:

+ Driver
+
+
+ Total activity

LO 4 Describe Activity-Based Customer and Supplier Costing

Acitivity-Based Customer Costing
  The Activity Rate (for order-filling) = = $ 2.000 per orders

The Activity Rate (for sales-force cost) = = $ 1.000 per call

Menggunakan informasi diatas, biaya yang dipicu dari customer dapat

dibebankan kepada setiap kelompok pelanggan:

($2.000 x 2) ($2.000 x 200)

($1.000 x 10) ($1.000 x 210)
Acitivity-Based Supplier Costing
• Consider a particular purchasing practice of RPT’s purchasing manager.
• The RPT purchasing manager uses two suppliers, Murray Inc. and Plata Associates, as the source
of two electronic components used in the production of its electronic panels (for large trucks):
Part A1 and Part B2.
• The purchasing manager prefers to use Murray Supplier because it provides the parts
at a lower price;
• However, the second supplier is used as well to ensure a reliable supply of the parts.
• Now consider two activities:
1) Repairing products (under warranty), and
2) Expediting products.
• Repairing products occurs because of part failure (bought from suppliers) or defective
manufacturing, including assembly.
• Expediting products takes place due to late delivery of parts or process failure.
Activity-Based Supplier Costing

Driver

  Rate =
Activity-Based Supplier Costing
ARIGATOU GOZAIMASU