Chapter 18 - Costing and the value chain. After studying this chapter you will be able to: Define the value chain and describe its basic components, distinguish between non-value-added and value-added activities, explain how activity-based management is related to activity-based costing, describe the target costing process and list its components,. | Costing and the Value Chain Chapter 18 2 R & D and Design Suppliers and Production Distribution and Marketing Customer Service The 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 Operations Non-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. Identify Eliminate Non-value- added activities Value and Non-value-Added Activities Analysis and Classification Activities Value and Non-value-Added Activities Non-value- Added Activities Reduce or Eliminate Value- Added Activities Continually 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 Activities What’s the difference between activity-based costing and activity-based management? Activity-Based Management — Drive Out Costs Activity-based management focuses on managing activities to reduce costs. Activity-based costing establishes relationships between overhead costs and activities. Activity-Based Management — Drive Out Costs Analyze activities Collect benchmark information Determine cost per unit of activity Identify activity measures Create cost pools Identify activities Activity-based costing Activity-based management ABC: a Subset of Activity-Based Management Chart 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 Chain Let’s move along to a new topic. The Target Costing Process — Creating Customer Satisfaction Focused on design. Consideration given to the . | Costing and the Value Chain Chapter 18 2 R & D and Design Suppliers and Production Distribution and Marketing Customer Service The 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 Operations Non-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. Identify Eliminate Non-value- added activities Value and Non-value-Added Activities Analysis and Classification Activities Value and Non-value-Added Activities Non-value- Added Activities Reduce or Eliminate Value- Added Activities Continually 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 Activities .
