Activity-Based Costing theory and implementation
1. ABC's development
ABC of the earliest dating back to the early 1940s. At that time, first proposed the concept of "operations accounting" (Activity-Based Accounting or Activity Accounting). And the first from the theory and practice of accounting operations is the U. S. Eric Kohler accounting of Jurists Professor. Professor Kohler has taught in the U.S. Northwest University, Ohio State University and the University of Minnesota, and served as "accounting reviews" editor-in-chief of 15 years. 1941, Kohler Professor "Accounting Forum" magazine published the first paper on the operations, operating account settings and other issues were discussed and put forward "for each operation are set up an account." Kohler Professor in the article pointed out: "The organization is a unit of a project, a large-scale construction projects, a planning and an important operations in all specific activities the contribution made by." The second on "The accounting" is George. J. Staubus Professor. He wrote in the accounting literature, Activity Accounting and Activity Costing regular mix. He insisted that: an accounting information system, "The accounting" is a useful and objective decision-making related to accounting. First of all operations on the accounting should be made clear "operations" and "cost" and "Accounting goals - the decision-making usefulness of the" three concepts. 1971 Professor Georges Tuobu Si has a significant impact on the "operating costs and input-output accounting" a book, the "operations" and "cost" and "operating costs" and made a comprehensive exposition of the concept .In the early 1980s, the medium-term, a large number of Western scholars began accounting of the traditional cost-accounting system to conduct a comprehensive reflection. Advanced manufacturing systems to promote universal system on time (JIT) from Japan to the entire western sky to turn the company management thinking of the impact of traditional management ideas and management methods and techniques of great changes, to a large number of Western scholars of traditional accounting of the cost-accounting system A review, the operating cost method of accounting academic research become a hot issue
In addition to magazines published in the papers, the scholars also wrote many
books on ABC. Which is more representative:
Professor Cooper and Kaplan, "Cost Management" magazine editor Lawrence Messer, the KPMG accounting firm (KPMG) of Eileen Morrissey)President Ronald M and Aum (Ronaed M Oehm) President, in the IMA and the support of KPMG, the selection of the eight major companies, the pilot, in 1992 wrote the "implementation of activity-based cost management: from analysis to action" (Implementing Activity - Based Cost Management: Moving From Analysis to Action).The very characteristics of the field research to answer: "The implementation of ABC to go through those steps will encounter any problems?, "" ABC system design is the most crucial decision-making is what ?", "design and implementation of ABC, What are the potential or unexpected danger? "," ABC's performance in the real value of which ?," "organizations in the non-financial managers how to enjoy the benefits of ABC?", "ABC shareholders on the value of what is ?", "Should take what action?. " The summing up the experience of large companies of ABC won the 1993 annual AAA Management Accounting Committee to the "outstanding contributions to the management accounting literature prize."
2. The operating division
Operating from the classification of different angles.
Jeff Miller and Tom Vollman two modern manufacturing operations researchers will be divided into the following four categories:
I, the logic of operations. Is a designated procurement, materials and ensure the implementation of the mobile operations. Busy with the logic of all the personnel operating the site inspections, including overhead and workers engaged in receiving, transport, registration data, the computer processing system and accounting personnel.
II, balance of operations. Is the raw material, labour and machinery supply and demand ratio of operating. Procurement, materials planning, production control, forecasting and planning officers in the execution of the balance of operations.
III, the quality of operations. Is to ensure consistent production and operating norms. Quality control, indirectly, engineering, procurement, personnel engaged in quality work. 3. The cost of state and the absorption costing
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Design changes cost method is intended to meet the needs of short-term decision-making. In this way, changes in product costs include only the cost, as will be done during the cost of fixed costs, changes in the cost method of inventory does not include any fixed costs. In the new manufacturing environment, changes in the cost total cost of increasing the proportion of small, especially those of advanced technology, changes in the proportion of costs less than 10 percent.In a traditional transaction volume or cost-based system, since the accountants as the number of products to distinguish between fixed and variable cost basis, making management difficult to confirm the cost in the end is how the changes to its decision-making on It can not consider the definition of fixed costs, and difficult to attain decision-making process more scientific. 4. Cost Driver
Generally speaking, the cost driver is leading to the cost of any factor, which is the cost of induced factors. For practical considerations, cost driver must be able to quantify. Quantifiable cost driver, including the number of production preparation, the number of parts, different quantities of scale, the number of work hours.
cost driver can be divided into cause and operational resources cause.
Cause of resources reflected the operations centre on the consumption of resources, resources are allocated to cost centres operating standards. In the process of distribution of resources is due to a one assigned to the operations to, therefore creating the operating cost elements. Each operation will cost elements together on the formation of the operating costs. Based on the cost factor and cost analysis, which may reveal the need to reduce resources, which need to re-allocation of resources and ultimately determine how to improve operations and reduce costs.
Motivation is the operations center will be operating costs assigned to products, services or customers in the standards, it also will be the ultimate resource consumption and output of communication between the intermediary. Through the actual analysis, can reveal what is the operating surplus, should be reduced, the overall cost should be how to improve, how to reduce.
5. The operating costs of the process
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1, confirmed the major operation and the operations center
An operations center that is part of the production process. For example, is a testing centre operations center. Operating costs in accordance with the disclosure of information centers, to manage the operations control, the assessment of performance. In recognition operations and operations center to the attention of the operations have the following characteristics:
-- Expensive resources, the amount of major.
-- Between the extent of the use of very different.
-- The demand for distinctive shape.
2, the use of resources will cause Guiji up input costs and resources allocated to each of the cost of operating centre library.
The cost of each represented by the Centre that it is enforced by the operation. This step of the distribution of work, reflecting the operations of the basic rules of accounting: the number of operations is determined by the consumption of resources, the level of consumption of resources and the final output is not directly related.
3, with operations in various operations will cause the cost-sharing center to the final outputs (products, services or customers). For example, by operation of the whole operation is the whole cause by the number of hours or reorganization. Preparation of the whole number of operations by assuming that each time the entire amount of resources are the same as a whole by the hour it is assumed that the consumption of resources, as the products needed by the whole change in the number of hours and change. This step reflects the allocation of the operations accounting rules is: how much output is determined by the operation of consumption.
6. ABC system implementation methods
Here described the structure of the method can be divided into two parts. Described in the first part should be done before the commencement of the design options. These options will have a definition of the system features. The second definition of the most successful implementation of the steps ABC system. These steps help determine the actual system design will be what it will look like and how it has been well received.
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(1), the decision-making
Need at least six decisions to make before the ABC system, namely:
1. Systems and existing systems integration or become an independent system
2. Prior to the implementation of whether there should be a formal design
3. Who is the owner of the final system’ ownership
4. Systems should be more precise
5. Systems should be reported to the history or the future cost
6. Preliminary design should be simple or complex
Decision 1: Independent System
There are several factors led to a planning group to the existing cost-accounting system at the side and the development of a PC-based system for the independent ABC preliminary application.
First, the existing system is a corporate system. Make any major changes require a lengthy approval process.
Secondly, the implementation of an independent system may be relatively faster and less expensive, mainly because companies do not have to integrate the development of the new ABC system and other company information systems (such as general ledger) software.
Finally, the ABC system and the integration of existing financial systems will need the approval of the external auditors, this will be another potential time-consuming and expensive process.
Decision 2: There are no formal design documents
Planning group decided to immediately implement ABC system, not long after the design approval process. Therefore, the design team never formed a formal document. This policy decision is made on the ABC because they know that the design of the system too little and can not begin to understand the project Most of the data collection and analysis phase of a piece of paper to design a good system (for example, all interviews must be in the group To determine the important work completed before). No formal design another reason is that upon receipt of additional information for system
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design changes. In particular, the control of fear made a formal design document will be premature to restrict access to experience the design team after the change in the system design capabilities. Finally, senior management since the implementation of the new system the task to control, then they control the ability to complete tasks are confident that the formal design of the comments it is not interested.
Decision 3: rather than a financial management system
To achieve this goal, the group include representatives from the finance, the subject of several members. To do so to nurture the new system throughout the company's obligations. Planning group also believe that the multidisciplinary team will improve the design of the new system, because the team can count on the staff of non-financial products and a detailed knowledge of the works have contributed to the design of the system.
However, the multidisciplinary team may have some potential obstacles. First, managers will not send high-level functions of the staff to the work of the Panel. Second, the group's members may need non-financial costs of the system design of sophisticated training. In fact, this concern proved to be incorrect. Manager functions will be enthusiastically supported the project because they urgently needed a better system cost. Financial group of non-staff through training seminars designed to solve a simple extension.
Decision 4: reduce the precision of
The planning group decided to design a new ABC system on the premise that: "similar to the right than precisely wrong good." Accept the premise that allows operating system based on substantial reliance on data obtained from interviews estimates. These estimates are necessary relatively imprecise. For example, a manager (supervisor) may be said: "I have spent 30 percent of the time in this center." The actual time may be as high as 40 percent or as low as 20%.Wherever possible, the estimated value of cross-examination in order to minimize error. Closest to report the cost of operating the system based on inaccurate, and the existing cost-accounting system to report costs accurately compare the four decimal. Reduce the accuracy is acceptable,
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because the activity-based cost of the product will be used for strategic decisions, such as those businesses should actively fight for those who should be avoided. These decisions are based on many factors, including the cost of the product. Therefore, the operating system based on the inherent relative inaccuracy may not affect the ultimate decision-making.
Decision 5: the average cost of years of history
The planning group decided to develop the system, the average historical cost rather than the estimated future costs. Therefore, the system designed to answer: "Last year, production of the products how much money? "rather than answer:" Next year will produce products of how much money ?."
ABC in recent years became a hot research, because it has brought the following three main benefits:
-- A more accurate cost of the product
-- the product of in-depth understanding of economics
-- enforced by the operating company Economics picture of the
So far, the ABC literature are mainly concentrated in the ABC is how to develop the theory rather than how to implement the ABC system. ABC explained the implementation of this system, allowing a three-member multi-disciplinary team in each of the total system cost about $ 100,000 in four to six months within a reasonable time so that ABC systems in the appropriate position possible.
However, the structure of this paper, the method certainly does not guarantee success, because it excludes a number of important factors must be considered (for example, the sales of the system, it overlooked a new supporter of the ABC system can play a key role) . However, this method is indeed to consider the implementation of the ABC system managers to provide a beginning.
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