Activity Based Costing in Repair/Rework Activities for Legacy Systems

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• Activity Based Costing in Repair/Rework
  Activities for Legacy Systems
• Naval Surface Warfare Center
• Crane, Indiana
• Gail W. DePuy, John S. Usher, G. Don Taylor,
  Cindy Edlin
• University of Louisville

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Company Overview

• NSWC-Crane serves the Navy as a recognized leader
  in diverse and highly technical products
• microwave devices
• acoustic sensors
• small arms
• microelectronic technology
• Crane stands as a leader in methods, technology,
  production and maintenance of modern naval combat
  weapons systems.

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Problem Definition

• Deliver an Activity-based Costing (ABC)
  spreadsheet to assist in Cranes desire to
  transition to a more responsive manufacturing
  environment
• Research activities
• Evaluate current costing methodologies in place
  for various overhead activities
• Develop an ABC software tool (MS-Excel) that more
  accurately apportions indirect costs to activity
  centers and then to specific products and
  services

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Various Spreadsheet Uses

• Cost Accounting
• Costs can be more accurately charged to Crane's
  various customers, managers of different
  functional groups can become more accountable,
  and problem areas can be more easily identified
• Cost Budgeting
• Since this occurs before a project is undertaken
  the spreadsheet can be used in a proactive way to
  establish performance goals for various programs
  or departments in the future
• Cost Estimation
• The spreadsheet offers the user the ability to
  input cost information at detailed activity or
  driver levels in order to more accurately
  estimate indirect activity costs

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Spreadsheet Layout Functions

• Top Level (Cost/Activity Center)
• Highest breakdown level
• Currently only level used in the existing Crane
  costing spreadsheet
• Activity Level
• Intermediate level of detail
• Activity level items consist of primary
  activities that consume a cost centers resources
• Driver Level
• Most specific level of detail
• Driver level items consist of the major activity
  cost drivers that cause activities to be
  performed or drive the need for their development
• Specific cost drivers are used to assign overhead
  costs to activities within each cost center

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Spreadsheet Layout Functions

• The spreadsheet uses various calculations that
  allow for driver level data to roll over to
  activity level data then further roll up to cost
  center level data

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Example

• Cost center 8091 Support
• The planning level is AEGIS (MK-20).
• 8091 Support has the following four primary
  activities and associated cost drivers
• Driver level detail is known for the financial,
  timekeeping, project analysis, and logistics
  activities.
• Only activity level detail is known for
  procurement.

Activities Activities Drivers
1 Procurement of bankcard purch., of small purch. of large contracts, of milstrips
2 Financial of funding documents, of CONS
3 Timekeeping of employees
4a Project Analysis of customers, of reports
4b Logistics of shipments, of tubes received
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• In the drivers worksheet the user would enter in
  volumes for the AEGIS (MK-20) system (i.e. row
  12) for columns I-O.
• Then in the activities worksheet the user would
  enter in known activity level data into cell E12
  for the procurement activity.

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• The drivers calculations worksheet displays work
  hours for each driver separated out into gvmt.
  and contract.
• The activity calculations worksheet displays
  government and contract work hours at the
  activity level.

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• The main calculations worksheet sums the total
  government and contract work hours from the
  activity calculations worksheet.

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• The AEGIS (MK-20) is made up of a group of 6 part
  numbers or NSNs therefore, the number of items
  (6) was entered in column F for 8091 Support.
  The six part numbers are shown in column D of the
  main worksheet. The hours per item columns for
  all the cost centers are rolled over to the main
  worksheet.

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Summary

• The ABC spreadsheet offers flexibility in terms
  of
• Level of detail desired (top level, activity
  level, and driver level)
• Desired use (cost estimation, cost accounting or
  cost budgeting)
• Desired planning level (part number, customer,
  functional department, etc.)
• The overall result is a better tool that will
  enable Crane to more accurately estimate,
  collect, and control costs
• The spreadsheet is equally useful for the
  following tasks
• Estimating new costs for individual products and
  new business
• Pricing new work or more accurately charging
  existing customers
• Understanding and controlling costs by functional
  area within Crane