Managing The Costs Of Creating Value - 20% Flashcards
What are the four levels of activity in ABC?
Unit level
Batch level
Product sustaining activities
Facility sustaining activities
What is abm?
Systems of management, which uses abc information for a variety of purposes including cost reduction, cost modelling, and customer profitability analysis
What are the five basic information outputs of ABM?
The cost of activities and business processes
The cost of non value added activities
Activity based performance measures
Accurate product service cost
Cost drivers
What decisions can using ABC information in an ABM system assist with?
Whether to continue with a particular activity
The effect on cost structure of a change in strategy
How changes in activities and components affect the suppliers and the value chain
What is direct product profitability?
Used primarily within retail sector
Involves attribution of both the purchase price and other indirect costs to each product line
Net profit can be identified for each product as opposed to a gross profit
What are the benefits of DPP?
Better cost analysis
Better pricing decisions
Better management of store and warehouse space
Rationalisation of product ranges
Better merchandising decisions
What is the customer profitability analysis?
Analysis of revenue streams and service costs associated with specific customers or customer groups
What are the characteristics of a modern business environment?
Global environment - companies operate in a world economy
Flexibility - companies have far greater choice than ever before
Employee empowerment
What is JIT production defined as?
Production system which is driven by demand for finished products whereby each component on a product line is produced only when needed for each stage
What is JIT purchasing defined as?
Purchasing system in which material purchases are contracted so that the receipt and usage of material, to the maximum extent possible, coincide.
What does a JIT system require?
Labour force must be versatile
Grouped by product line
Infallible information system
‘Get it right first time’
Strong supplier relationships
What are the benefits of a JIT system?
More diverse product ranges due to flexibility of process
Improved quality
Flexible manufacturing
Improved supply chain relationships
Improved customer satisfaction
What is TQM?
Programmes which seek to ensure the goods are produced and services supplied of the highest quality
What are the two basic principles of TQM?
‘Get it right first time’
Continuous improvement
What are the two types of quality costs?
Conformance costs
Non conformance costs
What are the two types of non conformance costs?
Internal failure costs
External failure costs
What are the two types of conformance costs?
Prevention costs
Appraisal costs
What are the benefits of TQM?
Higher quality output
Lower non conformance costs
Higher customer satisfaction
Goal congruence through employee buy in
What is kaizen?
Improve processes via small, incremental amounts.
Continuous improvement
Cost reduction
What is business process re-engineering?
Far-reaching one-off changes to improve operations or processes
What are the four stages of BPR?
Process Identification
Process rationalisation
Process re-design
Process re-assembly
What are the benefits of BPR?
Increases ability to meet customer needs
Provides cost advantages
Encourages a long term strategic view of operational processes by asking radical questions
Use tech to find innovative ways to improve processes
Eliminate unnecessary activites
What three criteria must an activity meet to be classed as value adding?
Customer willing to pay for output
Activity physically changes the output in some way
Activity is performed correctly at first attempt
What is target costing?
Pro active cost control system
Calculated by deducting target profit from a pre determined selling price based on customer views
What should the target profit requirement be driven by?
Strategic profit planning rather than a standard mark up
When should a target cost be set?
Before the design of the product is formalised.
It is only once the rage cost has been agreed that the design team can begin their work.
What does value analysis relate to?
Existing products
What does value engineering relate to?
Products not yet produced
What is value analysis?
Systematic interdisciplinary examination of factors affecting the cost of a product or service in order to devise means of achieving the specified purpose most economically at the required standard of quality and reliability.
What is value engineering?
Redesign of an activity, product or service so that value to the customer is enhance while costs are reduced or at least increased by less than the resulting price increase
What are the four types of value?
Costs value
Exchange value
Use value
Esteem value
What is the cost value?
Cost incurred by the firm producing the product
What is the use value?
Related entirely to function
What is the exchange value?
Amount of money that consumers are willing to exchange to obtain ownership of the product
What is esteem value?
Relates to the status or regard associated with ownership.
What is functional analysis defined as?
Analysis of the relationships between product functions, their perceived value to the customer and their cost of provision
What are the primary activities in porters value chain?
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Service
What are the support activities in porters value chain?
Firm infrastructure
Human resource management
Technology development
Procurement
According to porter what are the two strategies that organisations can follow to develop a competitive advantage?
Low cost strategy
Differentiation strategy
What are the four stages in life cycle costing?
Introduction
Growth
Maturity
Decline
What happens in the introductory phase of a life cycle?
Demand low
Heavy advertising expenditure
Aim is to establish product in the market
What happens in the growth stage of a life cycle?
Demand shows a stady and often rapid increase
Cost per unit falls
Aim is to establish large market share and perhaps become the market leader
What happens in the maturity stage of the life cycle?
Increase in demand slows down
Sales curve flattens out and eventually begins to falls
What factors need to be managed in order to maximise a products return over its life cycle?
Design costs out of the product
Minimise time to market
Maximise length of the life cycle itself
What costs may the life cycle costs be classified as?
Development costs
Design costs
Manufacturing costs
Marketing costs
Distribution costs
