1995 ASME Advances in Design Automation Conference, Boston, Massachusetts, Sept. 17-20, 1995.
THE USE OF ACTIVITY-BASED COSTING, UNCERTAINTY, AND DISASSEMBLY ACTION CHARTS IN DEMANUFACTURE COST ASSESSMENTS
Bert Bras and Jan Emblemsvåg The Systems Realization Laboratory The George W. Woodruff School of Mechanical Engineering Georgia Institute of Technology Atlanta, Georgia 30332-0405
ABSTRACT In this paper, the development of an Activity-based Cost (ABC) model is presented for use in design for demanufacture under the presence of uncertainty. Demanufacture is defined as the process opposite to manufacturing involved in recycling materials and product components after a product has been taken back by a company. The crux in developing an ABC model is to identify the activities that will be present in the demanufacturing process of a product, and afterwards assign reliable cost drivers and associated consumption intensities to the activities. Uncertainty distributions are assigned to the numbers used in the calculations, representing the inherent uncertainty in the model. The effect of the uncertainty on the cost and model behavior are found by employing a numerical simulation technique - the Monte Carlo simulation technique. The additional use of disassembly action charts allows the influence of the uncertainty to be traced through the cost model to specific demanufacture process and product design parameters. OUR FRAME OF REFERENCE The growing importance of including environmental issues in design has amplified the impetus for companies to more formally consider the entire life-cycle of a product, from cradle to grave or even to reincarnation through recycling and reuse. A crucial issue is the assessment of costs (or profit) related to pursuing environmentally benign products and processes. We believe that in order to provide efficient and effective decision support in life-cycle design, costing methods should: 1) Assess and trace costs and revenues; 2) Handle both overhead and direct costs; 3) Handle uncertainty; 4) Provide decision support for the process of designing. Attempts to generate formal and systematic design approaches which include environmental considerations, as well as economical, mechanical and other design considerations run aground when confronted with the need to quantify environmental
properties and requirements . Some hurdles to developing environmental impact and cost models are: a) there is a lack of both hard test data and past experience, b) new and different technologies are integrated with unknown effects, and c) designs are incomplete and evolving at the stage where the largest reduction in environmental impact and cost can be made. In addition, the world’ environmental processing capabilities are s largely uncertain. Hence, the following two questions still remain largely unanswered: • What is the cost associated with pursuing environmentally benign products and processes? • Which aspects of both the product and process design have the largest influence on these costs? In this paper, we present a method for developing cost models which aid designers in answering these and similar questions in the context of designing for the life-cycle. The core of our method is the combined use of Activity-Based Costing and uncertainty. Several costing approaches have appeared in the literature in the context of designing environmentally benign products and processes. However, when it comes to assessing costs to lifecycle and ecological issues, Activity-Based Costing (ABC) is gaining ground rapidly on conventional costing systems [2-5] . Based on our review of relevant life-cycle costing approaches, we believe that emerging Activity-Based Costing approach has the best potential for efficient and effective cost assessments in the context of designing for the life-cycle  . In this paper, we extend the work presented in  by including the following issues: • The uncertainty associated with the...
...Activity-basedcosting in restaurants
Interest in cost and management accounting practices in the restaurant industry is
rising (Raab et al., 2009; Annaraud et al., 2008). Pavesic (1985) has initiated research in pricing and cost accounting for restaurants, introducing the concept of profit factor
(PF) in menu engineering (ME). Prior studies, such as the one presented in Chan and
Au (1998) investigate the implications of not incorporating overhead costs in
menu-item profitability analyses in restaurants in Hong Kong. Since then, a number of
researchers have examined the application of contemporary cost and management
accounting techniques, and particularly activity-basedcosting (ABC) in a restaurant
environment (Raab et al., 2004).
ABC is a cost accounting methodology that aims to allocate overhead costs
effectively. ABC traces costs by using resource and activity cost drivers that reveal
activities and objects consumption patterns on the basis of a cause and effect
relationship. In an ABC, model cost drivers are used to establish a transitional mapping between resources, activities and cost objects. The identification and selection of appropriate and accurate cost drivers is one of the most difficult tasks in ABC models (Cobb et al., 1992). As this survey showed, most companies find it difficult to translate theory...
A Discussion on Activity-BasedCosting
ACC-532 Graduate Paper
A Discussion on Activity-BasedCosting
When we think of cost of accounting it is easy to come up with numerous different cost accounting methods which is because over the year’s cost accounting has developed in numerous ways to accommodate different types of situations. While every type of cost accounting is important and has its own benefit and disadvantages this paper will focus on what I believe is one of the most important cost accounting methods. The method that this research paper will focus on is the activity-basedcosting method, more commonly known as the ABC method. “A costing method that first assigns costs to activities and then to goods and services based on how much each good or service uses the activities” (Hilton, 2014), this is the definition of the ABC method according to the textbook Advanced Cost Accounting. While I believe that this definition gives us a good idea of the general idea of what the ABC method is it does not even begin to crack the surface of how important this costing method is and how essential it is to the companies that utilize it. In order to get a broad understanding of the ABC method this research paper will focus on three focus points. The...
The management of costs remains pertinent to the successful operation of any company. To achieve a competitive edge a company must consistently improve their service or product quality, lower their service or product costs, and eliminate services or products that incur profit losses. Using a traditional costing system the portion of overhead costs allocated to the production of a service or product is determined by the total of direct labor hours used in production of the service or product. Companies implement refined cost allocation systems such as the activitybasedcosting method with the intention of helping management strategically plan because these systems provide quality information to help management make informed decisions. In this essay, I will examine the use of cost allocations, the activitybasedcosting method, and how companies can implement and benefit from activitybasedcosting.
The allocation of costs serves four primary purposes throughout a company. The first is to present the information management needs to make an informed decision. The second is the reduction of non-essential uses of common company resources. The third is to encourage management to assess the efficiency of services provided internally. Finally, the fourth reason is the...
...ActivityBasedCostingActivity-BasedCosting (ABC) was developed as a practical solution for problems
Associated with traditional cost management systems. In the early 1980’s many
Companies began to realize that their traditional accounting systems were
generating inaccurate costing information. Traditional cost accounting systems
that were designed to address the issues of inventory valuation for external
audiences have two deficiencies. The inability to accurately determine actual
total product and service costs and the inability to provide useful information to
management for purposes of making operating decisions.
Users of ABC
Businesses want to know which of their products and services make or lose
money so they can remain competitive. To get a handle on this information, some companies have embraced activity-basedcosting/management (abc/m) to help them tract product and customer profitability and reduce operating costs. armed with the facts from, the abc/m data, managers can make better decisions about how they can use resources and can improve business processes.
Activity-basedcosting is an accounting methodology that links the following
elements; costs, which are the expenditures are classified as product costs. That resources are...
...ActivityBasedCosting can be defined as an accounting methodology that assigns costs to activitiesbased on their use of resources, rather than products or services. This enables resources and other associated costs to be more accurately attributed to the products and the services which they use. It doesn’t change or eliminate any costs; it provides detailed information about how costs are consumed. (Online manager-net.com).
Traditional cost accounting looks at what is spent, while ABC methods look at what is done in terms of activities. In ABC it is much easier to identify opportunities to reduce costs and improve performance, while maintaining the quality of care provided.
Traditional Cost Systems use cost allocation methods, do not focus on where or why costs occur, Report information that is accounting oriented and inaccurate. These systems are also not easily understood by operational managers, since the focus is fiscal.
Whereas ActivityBasedCosting assigns costs to activitiesbased on the resources they consume. ABC provides insights into the sources of costs and the possible impact of different decisions. It also provides the information required to take action and realize performance breakthroughs.
Implementation of Activity...
Instructor Bradley Johnson
December 17, 2012
In business, there are two separate costing methods that a firm can use. One of those methods is called traditional costing system and the other is activity-basedcosting. Activity-basedcosting (ABC) is a costing method that focuses on identifying activities which allocates the costs of each activity a firm uses. From our text, it identifies Activity-basedCosting as “a two-stage product costing method that assigns costs first to activities and then to the products based on each product’s use of activities” (Lanen, 2011, p. 329). A firm employing such a system provides a better understanding of the goods and services that it uses. Developing such a system in a firm comes from proper planning. When developing a firm, it is effective to follow certain steps to identify the process to attain the goals the firm has set. At times, many firms set certain examples by the managers to help understand the direction in which the firm is heading to become more effective....
... * Activity-BasedCosting (Encyclopedia of Management)
* Activity-BasedCosting (Encyclopedia of Small Business)
Activity-basedcosting (ABC) is an accounting method that allows businesses to gather data about their operating costs. Costs are assigned to specific activitiesuch as planning, engineering, or manufacturingnd then the activities are associated with different products or services. In this way, the ABC method enables a business to decide which products, services, and resources are increasing their profitability, and which are contributing to losses. Managers are then able to generate data to create a better budget and gain a greater overall understanding of the expenses that are required to keep the company running smoothly. Generally, activity-basedcosting is most effective when used over a long period of time, as opposed to shorter-term solutions such as the theory of constraints (TOC).
Activity-basedcosting first gained notoriety in the early 1980s. It emerged as a logical alternative to traditional cost management systems that tended to produce insufficient results when it came to allocating costs. Harvard Business...