ABC Technologies

Highland Insulators, PLC

by Peter B.B. Turney, PhD, CPA Darden School, University of Virginia, and Cost Technology, Inc. ®



EasyABC Quick Tutorial

Highland Insulators, PLC: Tutorial

Second edition. Copyright  1992 and 1999 Cost Technology, Inc. and ABC Technologies, Inc. All rights reserved. Cost Technology, Inc. 5635 SW Hewett Blvd Portland, OR 97221 Phone: 503. 292.2382 Fax: 503.645.2321 Email: [email protected] ABC Technologies, Inc. 16100 NW Cornell Road Suite 200 Beaverton, OR 97006 Phone: 503.617.7100 Fax: 503.617.7200 This document is protected under the intellectual property, copyright and/or trade secret laws of the United States and international treaties. It may not be reproduced in whole or in part, stored in a retrieval system, or transmitted, in any form, or by any means, mechanical, electronic, photocopying, recording, or otherwise, without the express written permission of Cost Technology, Inc. and ABC Technologies, Inc. Copyright protection includes material generated from the software products of ABC Technologies, Inc. and displayed on the computer screen, such as icons, screen displays. ABC Technologies, ABCViews, EasyABC, Easy ABCPlus, EasyABC Quick, Oros, Oros Framework, Oros Administrator, Oros Reports, Oros Links Engine, Oros ABCPlus, Oros EIS, Oros Designer, Oros Surveys, Oros Budgets, Oros Connect, Oros Yield, Oros Rules, Oros Strategies, and As Easy As ABC are trademarks of ABC Technologies, Inc. All other trademarks are owned by their manufacturers. Printed in U.S.A. V4.11 – 9.1.1999

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Highland Insulators, PLC: Tutorial

Contents Introduction....................................................................................................................................... 5 Activity-based costing.................................................................................................................... 8 EasyABC Quick............................................................................................................................. 9 Highland Insulators, PLC..............................................................................................................10 Creating a model .............................................................................................................................13 How to create a model..................................................................................................................15 Create a directory for the model ................................................................................................15 Launch EasyABC Plus..............................................................................................................16 Create a new model..................................................................................................................16 Review the model options .........................................................................................................18 Define periods ..........................................................................................................................18 Select a period..........................................................................................................................20 Structuring Resources .....................................................................................................................21 About resources ...........................................................................................................................23 How to structure resources...........................................................................................................24 Add centers and accounts.........................................................................................................24 Add cost elements ....................................................................................................................26 Structuring Activities ........................................................................................................................29 About activities.............................................................................................................................31 How to structure activities.............................................................................................................32 Create the main center..............................................................................................................32 Create the department centers..................................................................................................33 Create the activities ..................................................................................................................33 Assigning Resources to Activities.....................................................................................................35 About assigning resources ...........................................................................................................37 How to assign resources to activities ............................................................................................38 Display the activities .................................................................................................................39 Assign the cost of resources .....................................................................................................40 Define the driver for the Production Labor resource...................................................................40 Enter the driver quantities for the Production Labor resource.....................................................43 Define drivers and driver quantities for the Support Labor and Facilities resources ....................44 Select the driver for the Materials resource ...............................................................................46 Calculate the model ..................................................................................................................46 Structuring Cost Objects ..................................................................................................................49 About Cost Objects ......................................................................................................................51 How to structure Cost Objects ......................................................................................................51 Create a center to contain the products.....................................................................................52 Create an account for each product ..........................................................................................52 Costing Cost Objects .......................................................................................................................53 About costing cost objects............................................................................................................55 How to cost the Cost Objects........................................................................................................56 Open the Activity module ..........................................................................................................56 Display the Cost Objects...........................................................................................................57 Assign the activities ..................................................................................................................58 Define the driver for the Processing Orders activity ...................................................................59 Enter the driver quantities for the Processing Orders activity .....................................................61 Define and select the drivers for the remaining activities............................................................62 Enter driver quantities for the remaining activities......................................................................64 Calculate the model ..................................................................................................................66 Costing Units ...................................................................................................................................69 About costing units.......................................................................................................................71 How to cost a unit.........................................................................................................................71 Create a report of unit costs ......................................................................................................73 Entering Process Information ...........................................................................................................75 About entering process information ..............................................................................................77 Page 3

Highland Insulators, PLC: Tutorial

Using notes.............................................................................................................................. 77 Using attributes ........................................................................................................................ 78 Add a column to display the notes icon ........................................................................................ 78 Create a note............................................................................................................................... 80 Create an attribute hierarchy........................................................................................................ 81 Define cost drivers and performance measures ........................................................................ 82 Add a column to display the attributes icon .................................................................................. 82 Save a custom view..................................................................................................................... 84 Assign attributes to activities........................................................................................................ 85 Congratulations ........................................................................................................................... 88

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Highland Insulators, PLC: Tutorial

Introduction

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This tutorial helps you build a complete Activity-Based Costing (ABC) model using ABC ® Technologies’ EasyABC Quick™ software. The purpose of this tutorial is to:

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Reinforce your knowledge of ABC.

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Provide experience building an ABC model.

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Demonstrate how the leading ABC software works.

After completing the tutorial, you will be ready to take on advanced assignments that require the EasyABC Quick model building tool (or related software products). The tutorial progresses step-by-step through the process of building an ABC model of an organization—from resources, to activities and then cost objects—until you have built a complete model. It includes process attributes—performance measures, cost drivers, and so on—in addition to cost information. The tutorial utilizes data taken from an ABC case study of an organization called Highland Insulators, 1 PLC. Highland is based on an actual company situation, but the facts have been simplified to allow you to complete a realistic model in a reasonable period of time. The tutorial requires some familiarity with ABC concepts. It does not teach ABC theory, and it is recommended that you complete some basic reading on ABC prior to working the tutorial. The tutorial 2 does, however, include a review of basic ABC terms and their relationship to an ABC model. The first edition of the tutorial was prepared by Cost Technology, Inc. under the guidance of Peter B.B. Turney, PhD, CPA. The second edition was revised and updated by Dr.Turney and ABC Technologies, Inc. Dr. Turney is Adjunct Professor at the Darden Graduate School of Business at the University of Virginia and President of Cost Technology, Inc. EasyABC Quick is a product of ABC Technologies, Inc., and its name is a registered trademark. References to this software and representations of its user interface and functions are included in this tutorial with the permission of ABC Technologies, Inc.

1 Highland Insulators, PLC, Cost Technology, Inc., 1993. 2 Definitions of terms in the tutorial follow industry-standard practice. For example, the term cost driver refers to a cause of work, and activity driver refers to the measure used to assign cost from an activity to a cost object. These definitions may be at variance with those used in some textbooks.

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Highland Insulators, PLC: Tutorial

Activity-based costing Activity-based costing is a method of documenting, measuring, and analyzing business performance. It is a source of information about an organization’s products, customers, processes, resources, and other strategic items, and their interrelationships. This information can be used to support both strategic and operational decisions, as well as manage resource deployment and capacity. The ABC method includes two dimensions of information: the vertical dimension containing cost information and the horizontal dimension containing process information. The cost dimension is used for strategic decision making, whereas the process dimension is used to manage processes and their underlying activities. This is illustrated by the ABC 3 cross diagram in Figure 1.

Cost Assignment View Resources

Process View

Cost Drivers

Resource Cost Assignment

Activities

Resource Drivers

Performance Measures

Activity Cost Assignment Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 1. The ABC Cross diagram.

Figure 1 contains the key ABC terms that are used in the tutorial. The terms in the Cost Assignment View dimension are:

Term

Definition

Activity

An activity is a unit of work performed within an organization. It is a description of the work that goes on in an organization, and it consumes resources. Testing materials is an example of an activity. An activity driver is a factor that measures the consumption of an activity by a cost object. If a circuit board is the cost object, and attaching parts is the activity, then the number of parts attached to the board could be the activity driver. A cost object is a reason for performing an activity. Products, customers, and services are reasons for performing an activity. A resource is an economic element applied or used in the performance of activities. People, supplies, equipment, and facilities are examples of resources. A resource driver is a factor that measures the consumption of a resource by an activity. If the resource is people, and people spend time on various activities, then the proportion of time spent on each activity could be the resource driver.

Activity driver

Cost object Resource Resource driver

3 The ABC cross diagram was derived by Peter B.B. Turney and Norm Raffish and was originally published by the Consortium for Advanced Manufacturing - International (CAM-I) in 1991.

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Two additional terms are used in the Process View dimension. They are:

Term

Definition

Cost driver

A cost driver is an event or causal factor that influences the level and performance of activities and the resulting consumption of resources. The percent of parts received that are defective is an example of a cost driver. A performance measure is an indicator of the work performed and the results achieved in an activity. It is also a measure of how well an activity meets the needs of its customers. Performance measures in activity-based costing generally include the cost of the activity, its lead or cycle time, and its quality.

Performance measure

EasyABC Quick The EasyABC Quick software is a specialized tool for building ABC models. It has three main modules that parallel the cost dimension of the ABC cross diagram:

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Resources module

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Activities module

‰

Cost Object module

Information in the process dimension—cost drivers and performance measures—can be included using the software’s attribute feature. The software follows the approach and terminology of ABC described above. It has additional terms, however, that are important to its functioning but that are not part of standard ABC terms. The important software terms are as follows:

Term

Definition

Account

(1) A line item in a chart of accounts. An example of an account is Marketing Office Supplies. (2) Accounts are represented by three-layer blocks (in which the highlighted layer indicates the module) in the Resource module, Activity module, and Cost Object module. One account holds the costs related to it. A cluster of accounts related by function, department, location, or group. A particular department, for example, can be represented as a center. A center can have related accounts that represent personnel, administrative expense, wages, and so on. Centers are represented by folders in the Resource module, Activity module, and Cost Object module. Check boxes are used to select options. One or more check boxes can be selected at the same time. One type of cost category in an account. For example, the following five cost elements can belong to the Depreciation account: Furniture & Fixtures, Office Equipment, Capital Equipment, Application Software, and Phone System. See also assigned cost element, entered cost element, external unit, and internal unit. A small temporary window that appears in order to request information from the user.

Center

Check box Cost element

Dialog box

Directory Folder

Icon

See folder. Your documents and programs are stored in folders, which you can see in My Computer and Windows Explorer. In previous versions of Windows, folders were called directories. An icon is a graphical object that represents an executable program. Page 9

Highland Insulators, PLC: Tutorial

Term

Definition

Module

A structure that organizes account or activity or cost object information so it is easy to manipulate and view it. A model can have up to three modules: the Resource module, the Activity module, and the Cost Object module. Radio buttons are round buttons that indicate mutually exclusive selections on a dialog box. Only one radio button can be selected at a time.

Radio button

Highland Insulators, PLC Highland Insulators, PLC (HIP) manufactures and sells earthing strips to European electronics companies. Earthing strips are brass plates used to connect wires to grounding circuits. The tutorial guides you through the building of a complete cost model with resources, activities, and cost objects:

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HIP uses four resources: Production Labor Support Labor Facilities Materials

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Six activities are performed at HIP: Processing Orders Scheduling Orders Changing Dies Punching Parts Inspecting Lots Shipping Product

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HIP’s cost objects are its products—the earthing strips. HIP manufactures three types of earthing strips, which vary according to the number of holes in the strip (shown at right).

Figure 2. Earthing strips manufactured by Highland Insulators, PLC.

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Highland Insulators, PLC: Tutorial

Financial and operational data about resources, activities and products are provided as needed in the tutorial itself. Activity: Changing Dies Cost drivers: Number of work orders Distance to die cage Security procedures Lack of trust

In addition to the cost model, the tutorial allows you to extend ABC into the process dimension. Cost drivers and performance measures for the activity “Changing Dies” are provided for this purpose (Figure 3).

Baseline performance measures: $1,348 per work order $1,348 per die change 6-hour cycle time 50% first pass inspection Figure 3. ABC process data for the Changing Dies activity.

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Creating a model

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How to create a model In this section you will create a file called a model. This model will contain ABC data about Highland Insulator’s PLC. An ABC model is a network of pathways and logical associations that is populated with period data associated with a particular organization. The pathways show the flow of cost from resources to activities and from activities to cost objects. The logical associations reflect the proportion of cost consumed by activities and cost objects. The data include financial, operational, and descriptive information. The objective in building an ABC model is to accurately mirror the business system of the organization in question—in this case Highland Insulators PLC—for a particular accounting period. The ABC model is built in a computer file that contains the pathways, logical associations, financial and operational data, and descriptive information for Highland. You will now setup this file. You will later use the file to build the structure of the model and to enter data. The steps to create a new ABC model are to:

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Create a directory to hold the model data files.

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Name and describe the model.

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Select an initial fiscal period for all values.

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Enter default values for the software to utilize for the model.

This software requires each model to be saved in a separate directory. If you are already familiar with creating directories, create one called C:\ABC\TUTORIAL\, and proceed. Otherwise, follow these steps. For more information, see the Windows Help file.

Create a directory for the model 1. Run the Windows Explorer program. There are a number of ways to launch this program: one is to left click on the Start menu, select Programs, and select Windows Explorer. 2. In the list of Folders that appears, select the C: folder. 3. Select New and then Folder from the File menu. 4. Name the new folder ABC. 5. Double-click on the new folder ABC. 6. Select New and then Folder from the File menu. 7. Name the new folder TUTORIAL. Now you are ready to create a new model.

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Highland Insulators, PLC: Tutorial

Launch EasyABC Plus Launch EasyABC Quick by selecting Programs, Quick, and then EasyABC Quick from the Start menu. Note:

You can also launch EasyABC Quick by double-clicking its icon, which is on your desktop.

Create a new model 1. Select New Model from the File menu.

2. In a moment, the Model Summary dialog box displays. The default Title, PLUSTEMP, will be highlighted. Enter a title for the new model in the Title field. In this case, call it Highland.

Title of model

3. Single click inside the Description field, and then type Tutorial ABC model for Highland Insulators, PLC in the field. Description

You can choose the names you want for the three standard modules that comprise an ABC model. In this case, you will change the name of the Resource module. 4. In the Modules area, highlight Resource in the Resource field. In its place, type Overhead. 5. Change Overhead back to Resource.

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Modules can be renamed as you will.

Highland Insulators, PLC: Tutorial

6. Select OK to dismiss the dialog box. Note:

If you need to return to this dialog box, select the Model Summary… command from the Model menu.

7. Next, save the new model by selecting the Save Model As… command from the File menu. A dialog box similar to the one shown at right displays.

8. Navigate to the \ABC\TUTORIAL\ directory by clicking and then navigating to the appropriate folder.

on the right side of the Save in field

9. Double click inside the File name field. The default model name, model1.mdl, will be highlighted. 10. Type HIGHLAND in the File name field.

Filename

11. Click Save, and the software now creates its files and opens the Resource module window. Note:

It is a good idea to save the model frequently.

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Review the model options Now that you have saved the model, it is a good idea to review the software options. 1. Select the Options… command from the Model menu. This opens the Model Options dialog box. 2. Verify that the model options match those in the dialog box at the right. In particular, note the Auto-Save Model option. Make sure that its box is checked and that the option specifies 10 minutes or less between save operations.

This setting controls the frequency with which the software will remind you to save the model.

The high frustration levels normally experienced when data is lost for any reason indicate that this option should be left active and with a small time value. The dialog box at right will appear at approximately the interval set here.

Click OK to save the model.

3. Click OK to dismiss the Model Options dialog box when you are done.

Define periods All model data must be entered into one or more periods. A period represents a specific time frame, such as a month, a quarter, or a year as determined by the accounting period of analysis. In this model, you will create periods for four quarters in fiscal year 1999. The periods will be:

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FY99Q1

‰

FY99Q2

‰

FY99Q3

‰

FY99Q4

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Highland Insulators, PLC: Tutorial

1. Select the Define Periods… command from the Period menu. This opens the Define Periods dialog box.

The CONSTANTS period is a special purpose period that is predefined in the software. It is used to hold data which does not vary from time period to time period.

2. Click inside the Name text field, and type FY99Q1.

3. Click Create. Notice that the new period is added to the list below CONSTANTS.

New period added to list.

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Highland Insulators, PLC: Tutorial

4. Repeat steps 2 and 3 for the periods: FY99Q2, FY99Q3, and FY99Q4. Note:

You can quickly copy the name of the period you have already entered by selecting it from the list in the Periods section. Its name will then appear in the Name field. You can now edit it to the new period name you need. Then select Create to accept the new period name and add it to the list.

5. If you make an error, use Delete and Rename to correct the period name. To use these buttons you first select the erroneous period from the period list. To delete ALL information for the period, click Delete. To rename a period, type the new period name, and then click Rename. 6. Once the list looks like the one at the right, select Close.

Select Close to dismiss the dialog box.

Select a period Now that the fiscal periods for the year have been entered, select one for use. For this tutorial, you will use FY99Q1. 1. Click the Select Period… command from the Period menu. This opens the Select Period dialog box.

2. Click on FY99Q1 in the Select Period dialog box. Then, click OK. This closes the Select Period dialog box. Note that you could have defined periods from this dialog box instead of from the main menu. 3. Select Save from the File menu, to save your work. Save often to prevent losing data in the event of a power loss or a system crash.

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Structuring Resources

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About resources Throughout this tutorial, we will use the ABC cross diagram (at right) to remind you where you are in the process of creating an ABC model. The first step, after creating the new model file to contain the data you will enter, is to define resources.

Cost Assignment View Resources

Process View

You may be tempted to jump right to entering activities. Some careful work in structuring resources is needed, however, to organize the resources that activities will use.

Cost Drivers

Resource Cost Assignment

Resource Drivers

Performance Measures

Activities

Activity Cost Assignment

Resources are economic elements used in the performance of work. They include people, supplies, facilities and equipment.

Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 4. The ABC cross diagram. This portion of the tutorial shows how to structure the Resources module. Resource costs are organized by area of responsibility. For example, in Highland Insulators PLC the cost of people in production is reported separately from the cost of people in the support function. In this way, the ABC model parallels the responsibility accounting system. The cost of a resource is comprised of cost elements. Cost elements are usually the general ledger accounts associated with the resource. For example, the cost of production people at Highland comprises two cost elements; production labor and production benefits. In this section of the tutorial, you will create centers and accounts to organize the resources. You will enter resource amounts into cost elements. The chart that follows summarizes these accounts and elements. The center, Highland Insulators, PLC, contains all the accounts in this model. In most realworld models, many more centers are used to organize resources.

Account

Element

Production labor

Wages Production Benefits Salaries Support Benefits Utilities Supplies Materials

Support labor Facilities Materials TOTALS

Actual cost

Total cost by account

$300,000 $30,000 $450,000 $50,000 $50,000 $25,000 $212,000 $1,117,000

$330,000 $500,000 $75,000 $212,000 $1,117,000

Table 1. Accounts and cost elements for the Highland Resource module.

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Highland Insulators, PLC: Tutorial

How to structure resources The following steps show how to structure resources for Highland.

Add centers and accounts 1. The Resource module should already be open. If not, then select the Resource Module command from the Modules menu.

Now, you will create a center to hold all the accounts. Centers are represented in the software as folders. 2. Select Create Center from the Edit menu. This adds Account Center1 to the Resource module 3. Click on the name Account Center1 to select it. 4. Type Highland Insulators, PLC and then press Enter.

Now, it’s time to add accounts. Accounts in the Resource module are represented by a three-layer block with the top layer highlighted in blue. The four accounts you will add are:

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‰

Production Labor

‰

Support Labor

‰

Facilities

‰

Materials

Highland Insulators, PLC: Tutorial

5. Select the Create Account command from the Edit menu. A new account, named Account1, appears. 6. The name Account1 should be already selected and ready to edit. If it is not, click on the name Account1 to select it. 7. Type Production Labor, and then press Enter. 8. Repeat steps 5 through 7 for the accounts Support Labor, Facilities, and Materials. When you are done, your model will look like the one shown at right.

Note:

You can widen the Name column to see the whole name by dragging the divider between the columns, as shown:

Drag the divider to resize a column.

Please take note that all structures and amounts may be imported from data files. Importing often saves time and effort in building a model when data can be obtained from existing sources or when major structures are more easily built with spreadsheet tools. However, data importation is beyond the scope of this tutorial. Consult the EasyABC Quick online Help or Cost Technology consultants. Note:

The order of your accounts within a center might differ from the illustrations. The order is unimportant; As long as the accounts are in the correct center, your model is correct.

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Highland Insulators, PLC: Tutorial

Add cost elements Now the resource module structure is ready for resource elements and amounts. Please see the chart on page 23. Each resource account has one or more cost elements that must be added. You will repeat the following steps for each account. 1. Select the Production Labor account. 2. Select the command Create Cost Element from the Edit menu. A new item, called Cost Element1, appears beneath the Production Labor account. The cost element icon is an oval that vaguely resembles a coin: 3. Enter a new name for the cost element. It should be selected, but in case it is not, select it by clicking on the name. Type Wages and then select Enter

4. The next step is to enter the amount that the cost element contains. In the Cost column of the Wages row, enter the amount 300,000. The software will automatically add the dollar sign and thousands separator. To accept the number, press Enter or click somewhere else on the screen. Note that the parent account (Production Labor) and the center totals (Highland Insulators, PLC) are immediately updated also. 5. Repeat steps 1 through 4 for the cost element Production Benefits for $30,000. Note:

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If you accidentally create too many elements, click the icon to the left of the element name, and then press Delete.

Parent account.

Highland Insulators, PLC: Tutorial

6. Repeat steps 1 through 5 for each element within Support Labor, Facilities, and Materials. (For the list of costs elements, see page 23.) 7. Check your work. Your screen should now resemble the one on the right. 8. Now is also an excellent time to save the model. Select the Save command from the File menu. Note:

The order of your cost elements within an account might differ from the illustrations. The order is unimportant; As long as the cost elements are in the correct account, your model is correct.

Congratulations! You have completed building the Resource module.

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Structuring Activities

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About activities Cost Assignment View

With resources identified, the next step is to structure activities.

Resources

Activities are organized in a hierarchy in the ABC model. The hierarchy reflects the way work is organized or performed. It consists of activities and activity centers. Related activities are contained in an activity center. The activity center may be a department, process, division, company or other organizational unit. An activity center may be inside another activity center. For example, a department activity center is part of the company activity center. In this section, you create three department activity centers within an overall company activity center to contain the activities. Within the department centers, you create the activities.

Process View

Cost Drivers

Resource Cost Assignment

Activities

Resource Drivers

Performance Measures

Activity Cost Assignment Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 5. The ABC cross diagram. This portion of the tutorial shows how to structure the Activities module.

This tutorial walks you through a very simple example. An actual model, however, requires care and thought to achieve an effective structure and appropriate detail in activity definition. The activities and the activity center structure for this model are illustrated in the organization diagram at right. Figure 6. Activity center structure for Highland.

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How to structure activities Follow these steps to set up and structure activities. 1. Open the Activity module by one of these methods:

‰ ‰ ‰

Select the Activity Module command from the Modules menu.

Resource

Press Alt+2 Activity Click the middle module icon in the upper right corner of the main window. The first icon is for the Resource module, the second is the Activity module, and the third is the Cost Object module.

The window should now resemble the one at right.

Create the main center Now, you will create a center to hold the department centers. 1. Select Create Center from the Edit menu. This adds Activity Center1 to the Activity module.

2. Click on the name Activity Center1 to select it. 3. Type Highland Insulators, PLC and then press Enter.

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Cost Object

Highland Insulators, PLC: Tutorial

Create the department centers Now, you will add three department activity centers:

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Marketing Department

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Production Department

‰

Shipping Department

Follow these steps: 1. Select the center called Highland Insulators, PLC. 2. Select the Create Center command from the Edit menu. 3. Name the center appropriately. In this case, type Marketing Department and press Enter. 4. Repeat steps1 through 3 for the Production Department and the Shipping Department. The Activity module window should now resemble the window at right.

Create the activities Now, the model structure is ready for the addition of the activities. Follow these steps to add activities to each center.

Marketing Department

Production Department

Shipping Department

Processing Orders Scheduling Orders

Changing Dies Punching Parts Inspecting Lots Materials

Shipping Product

1. Make sure the window appears as shown at right. 2. Select the Marketing Department center.

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3. Select the Create Account command from the Edit menu. A new account called Activity1 is added. Note that Activity1 is already selected for editing. 4. If you have accidentally clicked elsewhere on the screen, click now on Activity1 to select it again. 5. Type Processing Orders and then press Enter.

6. Repeat steps 2 through 5 for the Scheduling Orders activity. The Activity module window should now resemble the window at right.

7. Repeat steps 2 through 6 for all activities in the Production Department and the Shipping Department. Note that materials is not a "real” activity. However, including it here preserves the traceability of the cost assignment that will be completed in the next section. Your screen should resemble the example at right.

Congratulations! You have completed the Activity module structure. Have you saved your work recently?

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Assigning Resources to Activities

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About assigning resources Cost Assignment View

With activities and resources identified, the next step is to assign the cost of resources to activities. The cost of resources is assigned to activities using resource drivers. A resource driver is a factor that measures the consumption of a resource by an activity. For example, Highland Insulators PLC assigns the cost of support labor based on the number of people deployed to each support activity. In this case the resource driver is the number of people by activity. In this section, you will assign four resources to eight activities. Here, again this model is very limited. An actual model would require more complex assignments to achieve accurate activity costs.

Resources

Process View

Cost Drivers

Resource Cost Assignment

Activities

Resource Drivers

Performance Measures

Activity Cost Assignment Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 7. The ABC cross diagram. This portion of the tutorial shows how to make assignments between resources and activities.

The resource cost assignment to activities and the resource driver quantities for this model are illustrated in the chart below.

Activity Processing Orders Scheduling Orders Changing Dies Punching Parts Inspecting Lots Shipping Product Materials Total Resource Driver

Resource to Activity Assignment Production Labor Support Labor Facilities

60% 40%

4 4 7 3 2

100% % Time

20 People

Materials

2,000 2,000 12,000 16,000 4,000 4,000 40,000 Square Footage

100% 100% None

Table 2. Resource assignments for the activities in Highland.

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How to assign resources to activities Follow these steps to assign resources to activities. 1. Open the Resource module by one of these methods:

‰ ‰ ‰

Select the Resource module command from the Modules menu.

Resource Activity

Press Alt+1 Cost Object Click the left module icon in the upper right corner of the main window. The first icon is for the Resource module, the second is the Activity module, and the third is the Cost Object module.

2. The window should now resemble the one at right.

Now, you will prepare to assign all resources to the appropriate activity accounts. 3. Change the view of the Resource module to the Source view by one of these methods:

‰ ‰

Select the Source View command from the View menu.

Destination view Multilevel view

Click the right view icon. The first icon is for the Destination view, the second is the Multilevel view, and the third is the Source view.

Source view

Your Resource module should resemble the example at right. The left half displays the resources to be assigned to the activities. The right half will display the activities that the resources will be assigned to.

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Resources

Activities

Highland Insulators, PLC: Tutorial

Display the activities 1. Click Add Accounts. Add Accounts Show Accounts Delete Accounts

EasyABC opens the Add Accounts for Assignments dialog box. The dialog box displays several parameters at the top of the dialog box. For Resource to Activity assignments, the default parameters are useable. These are: Module: Activity Data Type: Actual List Accounts: All

2. Click Highland Insulators, PLC. 3. Click Add Accounts. 4. To return to the Source view, click Close. Your display should resemble the example at right.

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Assign the cost of resources Everything is now ready for the first resource assignments. 1. Click the rectangle icon left of Production Labor. EasyABC highlights the resource account and displays the default assignment method (DriverName). 2. Click the arrow head to the left of Changing Dies. EasyABC draws a line from Production Labor to Changing Dies to indicate an assignment has been made. 3. Click the arrow head next to Punching Parts. Your first two assignments should look similar to the example on the right.

4. Using the chart on page 23, continue making the assignments for Support Labor, Facilities, and Materials.

Define the driver for the Production Labor resource Now, you will specify the driver for the Production Labor assignment link. 1. Prepare to enter driver quantities for the Production Labor resource account by one of these methods:

‰ ‰ ‰

Double click the rectangle icon left of the Production Labor resource account. Click the rectangle icon left of the Production Labor resource account to select it, and press Ctrl+D. Click the rectangle icon left of the Production Labor resource account to select it, and select Enter Driver Quantities from the Period menu.

EasyABC displays the Enter Driver Quantities dialog box.

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Now, you will select the resource driver. For the Production Labor resource account, you will select the Production Labor % driver. 2. Select the Drivers tab. The Enter Driver Quantities dialog box displays.

3. To select the driver, click Name drop-down list.

in the Driver List of all drivers

Notice that Production Labor % is not in the list. It must be created.

Now, you will create the Production Labor % driver. 4. Click Create Driver. EasyABC displays the Define Drivers dialog box.

List of all drivers.

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5. Click

.

A new driver named Driver 3 is created. Note:

Whenever you create a new driver, the number is incremented.

Notice the default values are: Quantity Type: Unique, and Driver Type: Basic.

6. Type Production Labor % in the Name text field. 7. From the Quantity Type drop-down list, select Shared. Leave the Driver Type set to Basic.

8. Click Update. EasyABC updates the driver name from Driver 3 to Production Labor % in the Drivers area. Driver 3 updated to Production Labor % 9. Close the Define Driver dialog box by clicking Close.

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10. Back in the Enter Driver Quantities dialog box, select Production Labor % from the Driver Name drop-down list. 11. Click Apply. Notice that the Resource area in the upper left now shows that the resource named Production Labor is assigned the driver named Production Labor %.

Enter the driver quantities for the Production Labor resource Now, you will enter the driver quantities for the Production Labor assignment. 1. Select the Assignments tab. 2. Widen the last column to show the entire driver name Production Labor %. Note:

See page 25 for information about how to widen the column.

3. In the Production Labor % column, click in the cell on the Changing Dies line. EasyABC draws a line around the cell. 4. Type 60.

5. Repeat steps 3 through 4 to enter the driver quantity of 40 on the Punching Parts line.

6. Click Close.

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Define drivers and driver quantities for the Support Labor and Facilities resources Now, you specify the drivers and driver quantities for the Support Labor and Facilities assignments. 1. Select the Define Drivers command from the Models menu. EasyABC displays the Define Drivers dialog box. Notice that the driver you just created, Production Labor %, is now included in the list of Drivers.

The driver you just created.

2. Define drivers named Support People and Square Footage by repeating steps 5 through 8 on page 42. When complete, the Define Driver dialog box should resemble that to the right. 3. Click Close. 4. In the Enter Driver Quantities dialog box, click Close.

5. In the Source view, double-click the icon to the left of Support Labor.

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6. In the Enter Driver Quantities dialog box, select the Driver tab, and then select Support People in the Driver Name area. 7. Click Apply. Notice the Resource area now shows Support People as the Driver Name.

Click the Apply button, and the Driver Name will reflect the new driver.

8. Select the Assignments tab, and enter the following driver quantities in the Support People column for the activities. (If needed, see steps 3 and 4 on page 43.) Activity

Driver Quantity

Processing Orders

4

Scheduling Orders

4

Changing Dies

7

Inspecting Lots

3

Shipping Product

2

After you enter the driver quantities, the assignments are similar to those shown at right. 9. Click OK. 10. Using your new knowledge of selecting drivers, change the Facilities resource driver from EVENLY ASSIGNED to Square Footage. (If needed, see steps 5 through 7 on page 44.)

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11. Enter the following driver quantities for the activities: Activity

Driver changed from EVENLY ASSIGNED to Square Footage.

Driver Quantity

Processing Orders

2,000

Scheduling Orders

2,000

Changing Dies

12,000

Punching Parts

16,000

Inspecting Lots

4,000

Shipping Product

4,000

(If needed, see steps 3 and 4 on page 43.) When you are done, the quantities will resemble those shown at right. 12. Click OK.

Select the driver for the Materials resource The resource driver for Materials is the EVENLY ASSIGNED system driver. Unless you have changed the default driver, this is the driver now assigned to Materials. No additional driver is required because Evenly Assigned will transfer 100% of the Materials resource account to the Materials activity.

Calculate the model Now, you will tell EasyABC to calculate the model. 1. Using one of the methods you’ve learned, select the Activity module. 2. Ensure that the view of the Activity module is set to the Multilevel view by one of these methods:

‰ ‰

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Select the Multilevel View command from the View menu. Click the middle view icon. The first icon is for the Destination view, the second is the Multilevel view, and the third is the Source view.

Destination view Multilevel view Source view

Highland Insulators, PLC: Tutorial

3. Prepare to calculate the model by one of these methods:

‰

Select the Calculate Costs command from the Model menu.

‰

Press F5.

‰

Click the Calculate icon.

EasyABC displays the Calculate Costs dialog box. 4. In the Calculate Costs dialog box, ensure that All Modules is selected in the Calculate Costs area. 5. Ensure that the Period is FY99Q1 and that the Data Type is Actual. 6. Click Calculate. EasyABC calculates the model based on the information you entered.

When the calculation is finished, the Calculation Summary window (shown at right) will summarize the calculation results. At this point, the warnings are due to an incomplete model. 7. Click the X in the upper right corner of the window to close it. 8. Saving the model at this point is an excellent habit.

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9. Compare your results to the example at right by viewing the Activity model in Multilevel view. 10. If the amounts differ, go back and check the resource assignments and resource driver quantities. Then, re-calculate the model.

Congratulations on successfully costing your activities. Is your work safe in case of a power outage? Save your work!

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Structuring Cost Objects

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About Cost Objects Cost Assignment View

With resources identified, activities structured and costed, the model is nearly complete. In this section, you will create a center to contain the three products that Highland Insulators, PLC makes.

Resources

Process View

A quick review of the ABC Cross in Figure 8 shows you where you are in the ABC model building process. At this stage you will create the cost objects. Cost objects are the reasons for performing the activities. They can include products, services, customers, channels of distribution and other factors that use the activities.Cost objects are contained in centers (similar to resource and activity centers). A cost object center is a grouping of common objects. Possible groupings in an ABC model include the company, product lines, and markets.

Cost Drivers

Resource Cost Assignment

Activities

Resource Drivers

Performance Measures

Activity Cost Assignment Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 8. The ABC Cross diagram. This portion of the tutorial shows how to structure the Cost Object module.

The Highland model is quite simple. There are three cost objects—the products—in one company center. Within this object center, you will create the three products: 3Strip, 2Strip and 1Strip.

Figure 9. Earthing strips manufactured by Highland Insulators, PLC.

How to structure Cost Objects Follow these steps to structure Cost Objects. 1. Open the Cost Object module by one of these methods:

‰ ‰ ‰

Select the Cost Object Module command from Modules menu.

Resource Activity

Press Alt+3. Click the right module icon in the upper right corner of the main window. The first icon is the resource module, the second is the Activity module, and the third is the Cost Object module.

Cost Object

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Your window should now resemble the one at right.

Create a center to contain the products Now, you create a center to hold the product accounts. 1. Select Create Center from the Edit menu. EasyABC creates a new center named Cost Object Center1. 2. Click on Cost Object Center1, type Earthing Strip Product Line, and press Enter.

Create an account for each product Highland’s products will be represented in the model by accounts. 1. Click on the Earthing Strip Product Line center. 2. Select Create Account from the Edit menu three times to create the three accounts that will hold Highland’s products.

3. Click on Cost Object1, type 3Strip, and press Enter. 4. Rename the remaining centers 2Strip and 1Strip. Your accounts should look similar to those on the right. The products are ready for linking to activities. Have you saved your work?

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Costing Cost Objects

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About costing cost objects At this point, the model’s structure is complete. In addition, you have assigned resources to activities. The only relationship that is missing is the assignment of activities to objects. The missing link in the ABC model is the activity driver. An activity driver assigns the cost of an activity to the cost objects. It measures the consumption of the activity by the cost objects. In this section, you use activity drivers to create the assignments between the activities and the three products of Highland Insulators, PLC.

Activities Processing Orders Scheduling Orders Changing Dies Punching Parts Inspecting Lots Shipping Product Materials

Cost Assignment View Resources

Process View

Resource Cost Assignment

Activities

Cost Drivers

Resource Drivers

Performance Measures

Activity Cost Assignment Activity Drivers

Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Cost Objects

Figure 10. The ABC Cross diagram. This portion of the tutorial shows how to cost the Cost Object module.

3Strip

2Strip

1Strip Activity Driver

800 95 95 12,000 95 800 120,000

1,000 85 85 7,000 85 1,000 60,000

1,200 120 120 4,000 120 1,200 32,000

# Customer Orders # Work Orders # Die Changes # Machine Hours # Work Orders # Customer Orders $ Materials Used

Table 3. Relationships and activity drivers between activities and products.

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How to cost the Cost Objects Follow these steps to cost Cost Objects.

Open the Activity module 1. Open the Activity module by one of these methods:

‰ ‰ ‰

Select the Activity Module command from the Modules menu.

Resource

Press Alt+2 Activity Click the middle module icon in the upper right corner of the main window. The first icon is for the Resource module, the second is the Activity module, and the third is the Cost Object module.

Cost Object

Your screen should now look like the example at right.

1. Close the cost elements by one of these methods:

‰

Select the Highland Insulators, PLC center, and select Collapse One level from the View menu.

‰

Select the Highland Insulators, PLC center, and click

‰

Click the minus sign (–) next to each account.

.

Your screen should look like that at right.

Now, you will prepare to assign all activities to the appropriate cost object accounts.

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4. Change the view of the Activity module to the Source view by one of these methods:

‰ ‰

Select the Source View command from the View menu.

Destination view Multilevel view

Click the right view icon. The first icon is for the Destination view, the second is the Multilevel view, and the third is the Source view.

Source view

Your Activity module should resemble the example at right. The left half displays the activities to be assigned to the cost objects. The right half will display the cost objects that the activities will be assigned to.

Activities

Objects of work

Display the Cost Objects 1. Click Add Accounts. Add Accounts Show Accounts Delete Accounts

EasyABC opens the Add Accounts for Assignments dialog box. The dialog box displays several parameters at the top of the dialog box. For Activity to Resource assignments, the default parameters are useable. These are: Module: Cost Object Data Type: Actual List Accounts: All

2. Click Highland Insulators, PLC. 3. Click Add Accounts.

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4. To return to the Source view, click Close. Your display should resemble the example at right.

Assign the activities Everything is now ready for the activity assignments. 1. Click the rectangle icon left of Processing Orders. EasyABC highlights the activity. 2. Click each arrow head next to 3Strip, 2Strip, and 1Strip. EasyABC draws lines from the activity to the cost objects to indicate an assignment has been made. Note:

You can select Assign to All from the Edit menu to assign all cost objects to the selected activity. (Or, press F7.)

3. Repeat steps 1 and 2 to assign the remaining activities to all three products.

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Define the driver for the Processing Orders activity Now, you will specify the driver for the Processing Orders assignment link. 1. Prepare to enter driver quantities for the Processing Orders activity by one of these methods:

‰ ‰ ‰

Double-click the rectangle icon left of the Processing Orders activity. Click the rectangle icon left of the Processing Orders activity to select it, and press Ctrl+D. Click the rectangle icon left of the Processing Orders activity to select it, and select Enter Driver Quantities from the Period menu.

EasyABC displays the Enter Driver Quantities dialog box. Now, you will select the resource driver. For the Processing Orders activity, you will select the No. of Customer Orders driver. 2. Select the Drivers tab. The Enter Driver Quantities dialog box displays.

3. To select the driver, click the arrow Driver Name drop-down list.

in the List of all drivers

Notice that No. of Customer Orders is not in the list. It must be created.

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Now, you will create the No. of Customer Orders driver. 4. Click Create Driver. EasyABC displays the Define Drivers dialog box.

List of all drivers.

5. Click

.

A new driver named Driver 6 is created. Note:

Your number might be different. Whenever you create a new driver, the number is incremented.

Notice the default values are: Quantity Type: Unique, and Driver Type: Basic.

6. Type No. of Customer Orders in the Name text field. 7. From the Quantity Type drop-down list, select Shared. Leave the Driver Type set to Basic.

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8. Click Update. EasyABC updates the driver name from Driver 6 to No. of Customer Orders in the Drivers area. Driver 6 updated to No. of Customer Orders. 9. Close the Define Driver dialog box by clicking Close. 10. Back in the Enter Driver Quantities dialog box, select No. of Customer Orders from the Driver Name drop-down list. 11. Click Apply. Notice that the Activity area in the upper left now shows that the activity named Processing Orders is assigned the driver named No. of Customer Orders.

Enter the driver quantities for the Processing Orders activity Now, you will enter the driver quantities for the Processing Orders assignment link. 1. Select the Assignments tab. 2. Widen the last column to show the entire driver name No. of Customer Orders. Note:

See page 25 for information about how to widen the column.

3. In the No. of Customer Orders column, click in the cell on the 3Strip line. EasyABC draws a line around the cell.

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4. Type 800.

5. Repeat steps 3 through 4 to enter the driver quantities of 1000 on the 2Strip line and 1200 on the 1Strip line.

6. Click Close. In the Source view of the Activity module, the DriverName for the Processing Orders activity is now No. of Customer Orders. (You might need to widen the column to see the entire name.)

Define and select the drivers for the remaining activities Now, you define and select the drivers for the remaining assignments. 1. Select the Define Drivers command from the Models menu. EasyABC displays the Define Drivers dialog box. Notice that the driver you just created, No. of Customer Orders, is now included in the list of Drivers.

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2. Repeat steps 5 through 8 starting on page 60 to define the following drivers (Quantity Type: Shared, Driver Type: Basic): Name No. of Work Orders No. of Die Changes

Create all drivers with this Quantity Type and Driver Type.

No. of Machine Hours $ of Materials Used When complete, the Define Driver dialog box should resemble that to the right. 3. Click Close.

4. In the Enter Driver Quantities dialog box, click Close. Now, you will select the driver for each remaining activity. 5. In the Source view, double-click the icon to the left of Scheduling Orders. 6. In the Enter Driver Quantities dialog box, select the Driver tab, and select the Driver Name of No. of Work Orders. 7. Click OK. Click the Apply button, and the Driver Name will reflect the new driver.

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8. Using your knowledge of selecting drivers, change the following activities’ drivers: Activity

Driver Name

Changing Dies

No. of Die Changes

Punching Parts

No. of Machine Hours

Inspecting Lots

No. of Work Orders

Shipping Product

No. of Customer Orders

Materials

$ of Materials

(If needed, see steps 5 through 7.) When complete, your assignments should look similar to those at right.

Enter driver quantities for the remaining activities In this section, you will use another method to enter the remaining driver quantities. 1. In the Source view, click on Scheduling Orders. 2. Notice that the DriverQuantity cells for 3Strip, 2Strip, and 1Strip are 0.00. 3. Click on the DriverQuantity cell for 3Strip, and type 95. 4. Repeat step 3, entering 85 for 2Strip and 120 for 1Strip. Your driver quantities should be similar to those at right. 5. Using this new method, enter the following activities’ driver quantities: Activity

3Strip

2Strip

1Strip

Scheduling Orders

95

85

120

Changing Dies

95

85

120

Punching Parts

12,000

7,000

4,000

Inspecting Lots

95

85

120

800

1,000

1,200

120,000

60,000

32,000

Shipping Product Materials

6. When complete, ensure that your activity drivers and their quantities match the following samples:

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Scheduling Orders

Changing Dies

Punching Parts

Inspecting Lots

Materials

Shipping Product

Now is an excellent time to save your model if you haven't recently done so.

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Calculate the model With all activity drivers assigned and activity driver quantities entered, you are ready to calculate the model costs. 1. Open the Cost Object module by one of these methods:

‰ ‰ ‰

Select the Cost Object Module command from Modules menu.

Activity Press Alt+3. Click the right module icon in the upper right corner of the main window. The first icon is the resource module, the second is the Activity module, and the third is the Cost Object module.

2. Ensure that the view of the Cost Object module is set to the Multilevel view by one of these methods:

‰ ‰

Select the Multilevel View command from the View menu. Click the middle view icon. The first icon is for the Destination view, the second is the Multilevel view, and the third is the Source view.

3. Prepare to calculate the model by one of these methods:

‰

Select the Calculate Costs command from the Model menu.

‰

Press F5.

‰

Click the Calculate icon.

EasyABC displays the Calculate Costs dialog box.

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Resource

Cost Object

Destination view Multilevel view Source view

Highland Insulators, PLC: Tutorial

4. In the Calculate Costs dialog box, ensure that All Modules is selected in the Calculate costs area. 5. Check Report Errors Only in the Errors and Warning area. 6. Ensure that the Period is FY99Q1 and that the Data Type is Actual. 7. Click Calculate. EasyABC calculates the model based on the information you entered. When the calculation is finished, the Calculation Summary window (shown at right) summarizes the calculation results. This window displays statistics about the model including the number of errors, warnings, assignments paths calculated, and elapsed time for the calculation. 8. Click the X in the upper right corner of the window to close it.

9. Check your results for each module by reviewing the total cost for each module. In particular, verify that each module's total cost is correct.

If you haven't saved your work, you are now long overdue.

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Costing Units

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About costing units Cost Assignment View

The concepts in costing units may be applied to:

‰ ‰ ‰

Resources

costing activities in terms to compute a cost per unit of work Process View

costing products to compute an unit product cost

Resource Cost Assignment

Activities

Cost Drivers

costing services to compute a cost per service unit

Since EasyABC operates similarly in the different modules, costing units of work for activities is the same as costing units of product or services. The only difference is that you would select an activity instead of a product or service before entering the unit cost information. This tutorial will illustrate unit costing of a product only.

Resource Drivers

Performance Measures

Activity Cost Assignment Activity Drivers

Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Cost Objects

Figure 11. The ABC Cross diagram. This portion of the tutorial shows how to calculate unit costs for a product.

Use the following table for statistics and to check your model’s results.

Product Total 3Strip 2Strip 1Strip Total

Quantity Output

$431,742.57 $327,883.51 $357,373.91 $1,117,000.00

Cost per Unit

12,000 10,000 8,000 30,000

$35.98 $32.79 $44.67

Table 4. Expected unit costs for each product of Highland Insulators, PLC.

How to cost a unit 1. Open the Cost Object module by one of these methods:

‰ ‰ ‰

Select the Cost Object Module command from Modules menu.

Resource Activity

Press Alt+3. Click the right module icon in the upper right corner of the main window. The first icon is the resource module, the second is the Activity module, and the third is the Cost Object module.

Cost Object

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2. Ensure that the view of the Cost Object module is set to the Multilevel view by one of these methods:

‰ ‰

Select the Multilevel View command from the View menu. Click the middle view icon. The first icon is for the Destination view, the second is the Multilevel view, and the third is the Source view.

3. Click the icon to the left of the 3Strip account. 4. Prepare to enter the output quantities for the 3Strip product by one of these methods:

‰ ‰

Select the Enter Output Quantities command from the Period menu. Press Ctrl+Y.

EasyABC displays the Enter Output Quantities dialog box. 5. In the Enter Output Quantities dialog box, check Actual in the Output Quantities area. 6. Double-click in the text box to the right of the Actual check box, and type 12,000, which is the number of 3Strips produced. 7. Click in the Measure text box, and type 3Strips. Did you notice that as soon as you moved into the Measure text box, the Cost Actual column at the bottom changed to reflect the unit cost? 8. Click OK to close the dialog box. 9. Repeat steps 3 through 8 to calculate the unit cost for 10,000 2Strips and 8,000 1Strips. Do the unit costs match those shown in Table 4?

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Destination view Multilevel view Source view

Highland Insulators, PLC: Tutorial

Create a report of unit costs Now, produce a report of the unit costs. 1. Select the Generate Reports command from the File menu. The Generate Reports dialog box displays. 2. In the Module Reports area, select Unit Costs from the list box. 3. Ensure that the Period is FY99Q1. 4. Click Select Data. The Select Data dialog box displays. Notice that the Report Format area in the upper left indicates that the report to be generated is the Unit Costs report. 5. In the Module area, select Cost Object. 6. In the Data Type area, uncheck Budget. Because you haven’t entered any budget information, the report doesn’t need to report it. 7. In the Center/Accounts area, select All. 8. Click OK. 9. Back in the Generate Reports dialog box, click Report, which is in the upper right corner. 10. Compare the unit costs generated by EasyABC to those values in Table 4. 11. To close the Unit Costs window, click the X in the upper right corner of the window.

Congratulations on completing product unit cost. While this topic is fresh, try it to compute a unit of work for activities in the Activities module. After, of course, you have saved your work!

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Entering Process Information

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About entering process information Cost Assignment View

Thus far, the model that you have built includes only elements from the vertical boxes in the ABC model on the right. EasyABC has two additional features that may be used to document elements from the horizontal boxes. These features are:

‰

Notes

‰

Attributes

You will use these features to enter process information about activities into the ABC model. This information includes:

‰

‰ ‰

Resources

Process View

Cost Drivers

Resource Cost Assignment

Activities

Resource Drivers

Performance Measures

Activity Cost Assignment Adapted from The CAM-I Glossary of Activity-Based Management, edited by Norm Raffish and Peter B.B. Turney, (Arlington: CAM-I, 1991.)

Activity Drivers

Cost Objects

Figure 12. The ABC Cross diagram. This portion of the tutorial shows how to document and include the process view.

Cost Drivers. You can identify the cost drivers associated with each activity. A cost driver is an event or causal factor that influences activity performance. Information about cost drivers are used in a program of Activity-Based Management (ABM) to identify ways of improving activity performance. Performance Measures. You can also enter performance measures for each activity. A performance measure is an indicator of the work done and the results achieved in an activity. Cost, lead-time and quality are examples of performance measures used in ABC. Relationships. You can document relationships between activities. For example, you can identify all activities that have potential to be improved, or are document-intensive. These relationships can be used to prepare useful ABC reports for management.

Using notes Use notes to describe any center or account (Resource, Activity, Object) in the EasyABC model. Two types of notes may be entered into the EasyABC model:

‰

Model notes

‰

Period notes

Model notes are a permanent part of the model structure. Period notes exist with the period data. That is, when you enter a new period, they will not show in the new period model. However, they are still with the previous period data.

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Using attributes Use attributes to group any centers or accounts (Resource, Activity, Object) having something in common. An attribute hierarchy is used to group common attributes together. For this exercise, the attribute center named Team Labels will contain three attributes:

‰

High Improvement Potential

‰

Documentation-Intensive

‰

External Customer Interface

Team Labels High Improvement Potential

Activity Processing Orders Scheduling Orders Changing Dies Inspecting Lots Shipping Product

Yes Yes Yes Yes

DocumentationIntensive

External Customer Interface

Yes

Yes

Yes Yes

Yes

Table 5. HIP's activities and their assigned attributes.

Add a column to display the notes icon In this section, you will add a column to the Activity window so that the notes icon can be displayed. 1. Using the methods you’ve learned thus far, open the Activity module, and display the activities in the Multilevel View. Your window should resemble that at right. Note:

You can enter notes in any view.

2. Click on the column heading for the Cost column.

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3. Select the Add Column command from the View menu in the main window. EasyABC displays the Add Column dialog box.

4. Select the Icon tab. 5. Click Notes. With this parameter enabled, EasyABC displays a note icon ( ) next to any account or center that has a note is attached. 6. Click OK.

EasyABC adds a new column to the right of the Cost column. This column will display the notes icon. New column to display the notes icon.

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Create a note Now, you will create a note. 1. Click the icon left of the Processing Orders activity to select it. 2. Select the Enter Notes command on the Period menu. The Enter Notes dialog box opens. Notice that EasyABC identifies what the note will be attached to in the Activity area. 3. Click inside the Model field. 4. Type Cost drivers include customer confusion about part specifications. Customer representatives must spend a long time on the telephone explaining product features for routine orders. 5. Click inside the Period field.

6. Type Performance this period was severely impacted by temporary personnel filling in for vacationing employees. 7. Click OK to close the dialog box. Notice that EasyABC now displays a note icon next to the Processing Orders activity. Note:

If you want to view or edit the notes later, double-click the note icon to reopen the Enter Notes dialog box.

8. Repeat steps 1 through 7 for each activity, making up your own text for practice.

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Create an attribute hierarchy In this section, you will create an attribute hierarchy. 1. Select the Define Attributes command from Model menu. EasyABC opens the Define Attributes dialog box. 2. Click inside the Name text field in the Definition area. 3. Type Team Labels. 4. From the Attribute Type drop-down list, select Center to designate this attribute as an attribute center.

Team Labels attribute will be added here.

5. Click Create to create the attribute center. EasyABC adds the Team Labels attribute to the Attribute Hierarchy list box. Now that you’ve created the top of the hierarchy, you will create the attributes below this level. 6. Click on Teams Labels to select it.

7. In the Definition area, click inside the Name text field, and type High Improvement Potential. 8. From the Attribute Type drop-down list, select Text to designate this attribute as a text attribute. 9. Click Create to create the attribute. EasyABC will add the High Improvement Potential attribute to the Team Labels attribute hierarchy. 10. Repeat steps 6 through 9 to create the text attributes Documentation-Intensive and External Customer Interface. At this point, your attribute hierarchy should look like the one at right. 11. Click Close.

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Define cost drivers and performance measures Now, define cost drivers and performance measures that will be assigned to the Changing Dies activity. 1. Repeat steps 1 through 5 on page 81 to create a new attribute center named Cost Drivers. 2. Repeat steps 6 through 9 on page 81 to create the following cost drivers under the attribute center Cost Drivers: CD-Number of work orders CD-Distance to die cage CD-Security procedures CD-Lack of trust When complete, the Define Attributes dialog box should look similar to that at right. 3. Double-click on the Cost Drivers attribute center to collapse the attributes under it. 4. Create a new attribute center named Performance Measures. 5. Create the following performance measures under the attribute center Performance Measures: PM-Cost per work order PM-Cost per die change PM-Cycle time (hours) PM-First-pass inspection (%) When complete, the Define Attributes dialog box should look similar to that at right. 6. Click Close.

Add a column to display the attributes icon In this section, you will add a column to the Activity window so that the attributes icon can be displayed. 1. Click on the column heading for the note icon column.

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Highland Insulators, PLC: Tutorial

2. Select the Add Column command from the View menu in the main window. EasyABC displays the Add Column dialog box.

3. Select the Icon tab. 4. Click Attributes. With this parameter enabled, EasyABC will display an attribute icon ( ) next to any account or center that has an attribute attached. 5. Click OK.

EasyABC adds a new column to the right of the note icon column. This column will display the attributes icon. New column created to display the attributes icon.

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Highland Insulators, PLC: Tutorial

Save a custom view Now that you’ve added two new columns to the Activity window, save this view of the information so you can use it again without having to re-create the columns. 1. Prepare to save this view by one of these methods:

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Select the Named Views… command from the View menu.

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Press F4.

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Click

.

The Named View dialog box displays. 2. Click Local. Note:

3. Click

The new view will be available only to you. To save the view with the model so that other people can use it, save the view with the model by clicking Model instead of Local. .

A new view named Named View1 is added under Local. 4. While Named View1 is selected, type Notes & Attributes. 5. Click Display. The view is saved, and the Activity window now displays the name Notes & Attributes. 6. To change to this view later, display the Named Views dialog box, select the view, and click Display.

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Highland Insulators, PLC: Tutorial

Assign attributes to activities In this section, you will assign attributes to some of the activities. 1. Double-click under the attribute icon column within the Processing Orders line. Note:

You could also select the Processing Orders activity, and select the Add Attributes command from the Edit menu.

EasyABC shows the Add Attributes dialog box. 2. Double-click Team Labels in the Attribute Hierarchy list box to open this attribute center. With all the attributes displayed, you could add attributes one at a time. But there’s an easier way. 3. Because all three attributes are to be assigned to the Processing Orders activity, ensure that Team Labels is highlighted, and click