ABC Recap

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ABC Recap
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Traditional Unit Driver Systems

• Promotes a cross-subsidy to low volume specialty
  products from high volume vanilla products
• Facilitates ignoring costs from elements of the
  value chain other than production. Ignores RD,
  Design, Marketing, Distribution, and Customer
  Service Costs. That is, ABC costs can include
  production costs as well as GAAP period costs.

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Value Chain
R D
Design
Production
Management Accounting
Marketing
Distribution
Service
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Benefits

• Income Determination for GAAP
• ?????
• Planning Control (Better Understanding of Cost
  Drivers)
• Product Pricing
• Product Mix
• Process/Systems Re-design

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Costs

• Installing the ABC System
• ERP systems sold by Oracle, PeopleSoft, and SAP
  all have ABC modules
• Training to implement and use the ABC system
• Operating and Maintaining the ABC system

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The Trade Off

• Is the benefit cost ratio greater than
  1?Benefit/Cost 1

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Is Not Using ABC a Mistake?

• You can use it on a case-by-case basis to study
• Suppliers
• Production Methods
• Customers, etc
• You can hire a consulting firm to do the above
  instead of doing it yourself
• Not adopting ABC for your GAAP cost accumulation
  system to report to investors and the IRS does
  not preclude you from using ABC on a
  case-by-basis on your own or by using a
  consulting firm