NAMA : NELA NURHASANAH
NPM : 501180034
SEM : 4C (SORE)
Exercise chapter 4 – cost accounting
1. What is activity-based management (ABM), and what specifi c management tools are used in ABM?
Answer :
Activity-based management (ABM) is a business process model focusing on the control of production or
performance activities so that they improve customer value and enhance profitability. ABM includes a
variety of concepts that help companies to produce more efficiently, determine product or service costs
more accurately, and control and evaluate performance more effectively.Management tools used in
ABM are activity analysis, cost driver analysis, activity-based costing,continuous improvement,
operational control, quality management, business process improvement, and performance
measurements
2. What is activity analysis, and how is it used with cost driver analysis to manage costs?
Answer :
Activity analysis is the primary component of activity-based management and is defined as theprocess of
studying activities to (1) classify them into value-added or non-value-added activities category and (2)
devise ways of minimizing or eliminating activities that increase costs but provide little or no customer
value. Once the non-value-added activities are identified, managers seek to reduce or eliminate the level
of the drivers of those activities
3. Why are value-added activities defi ned from a customer viewpoint?
Answer :
Value-added activities are defined from a customer viewpoint because it is the customer who is the final
evaluator of a product’s or service’s value and the activities involved in creating the product or service.
In the final analysis, the customer should also determine whether he or she are willing to pay the price
for engaging in all of the activities incurred in the production of a product or the performance of the
service.4. Other activities that take place during a televised football game include commercials, replays,
TV announcers, coaches, players, referees, fans. Value-added activities is the actual playing time.
4. In a televised football game, what activities are value-added? What activities are nonvalue- added?
Would everyone agree with your choices? Why or why not?
Answer :
Advertisments, time outs, injuries, narration, play reviews, and stat review are all other processes tht
occur during a foot aside from the actual game being played. In my opinionI believe the advertisments
would be the only value added activities because of my position as a customer; the rest would be non-
value added activities. I don’t believe everyone would agree with me because some customers, like men
playing fantasy football, do value these activities. As a customer different activities had different values.
In my viewpoint as a customer the football game has a low cycle efficiency because of the high amount
of non-value added activities.
5. If fi ve people from the same organization calculated manufacturing cycle effi ciency for one specifi c
process, would each compute the same MCE? Why or why not?
Answer :
No, each MCE would be similar but different. MCE divides total value added time by total cycle time and
each customer will choose different value added activites. Since the five people are all a part of 1
organization their MCEs will likely be close because they are likely similar people who value similar
activities.
6. Do cost drivers exist in a traditional accounting system? Are they designated as such? How, if at all,
does the use of cost drivers in a traditional accounting system diff er from those in an activity-based
costing system?
Answer :
Yes, cost drivers exist in traditional accounting systems although they are called "bases for allocation." In
traditional systems, a single cost driver such as direct labor hours or machine hours is commonly used
rather than multiple cost drivers.
7. Why do more traditional methods of overhead assignment “overload” standard highvolume products
with overhead costs. How does ABC improve overhead assignments?
Answer :
.Traditional method assigns one rate to all overhead cost. This process heavily over allocates overhead.
ABC method specifically finds the overhead rate for each activity
8. Once an activity-based costing system has been developed and implemented in a company, will that
system be appropriate for the long term? Why or why not?
Answer:
Activity based costing (ABC) :--Activity-based costing (ABC) is an accounting method that allows
businesses to gather data about their operating costs
9. Are all companies likely to benefi t to an equal extent from adopting ABC? Discuss.
Answer :
The level of benefit derived from applying activity based costing is not same for all the organizations; the
extent of benefits depends upon the specific conditions of an organization in which activity based
costing is applied.
10. Signifi cant hurdles, including a large time commitment, are often encountered in adopting ABC.
What specifi c activities associated with ABC adoption require large investments of time?
Answer :
Many companies have used activity-based costing (ABC) in onetime profitability studies to help them
decide which products or customers to cut or keep. But ABC can be much more than a superior
accounting technique that shows how much money individual products are really making or losing.
When ABC is woven into critical management systems, it can serve as a powerful tool for continuously
rethinking and dramatically improving not only products and services but also processes and market
strategies.
