CHAPTER 4 Activity-Based Cost Systems for Management After completing this chapter, you should be able to answer these questions: What is the focus of activity-based management? Why do non-value-added activities cause costs to increase unnecessarily? | CHAPTER Activity-Based Cost Systems for Management 4 LEARNING OBJECTIVES After completing this chapter you should be able to answer these questions 0 What is the focus of activity-based management 2 Why do non-value-added activities cause costs to increase unnecessarily 0 Why must cost drivers be designated in an activity-based costing system s How does activity-based costing differ from a traditional cost accounting system 0 How does the installation of an activity-based costing system affect behavior 0 What is attribute-based costing and how does it extend activity-based costing 0 When is activity-based costing appropriate in an organization INTRODUCING Carrier Corporation Carrier a United Technologies company is the world s largest manufacturer of air conditioning and heating products. Competition is intense however and among its six largest competitors Carrier is the only one that is not Japanese owned. The director of cost improvement for Carrier s worldwide operations notes that Carrier s customers demand a wide range of products that have unquestionable quality and include state-of-the-art features. Further they expect these products to be delivered when needed at a competitive price. As the industry leader Carrier strives to maintain its dominant position through innovative product design product differentiation high-quality low-cost manufacturing zero defects and cost leadership and time-based competition. To achieve these objectives Carrier has implemented a series of improvement initiatives including just-in-time product and process standardization strategic outsourcing supply chain management target costing and performance measurement. Complexity reduction is a common goal among each of these initiatives. These changes instituted by Carrier were in response to both internal and external challenges. While Carrier s manufacturing environment was changing dramatically at the plant level its parent company http United Technologies continued
