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I need a discussion response to my peers discussion post
Activity based management is “an outgrowth of ABC that draws on the link between activities and cost incurrence for better management” which can be useful in distinguishing value-added activities (adding value to products). (Wild. 2016. p. 144) “Just in Time Manufacturing is a system that acquires inventory and produces only when needed.” (Wild. 2016. p. 20) The value of using activity based management with just in time manufacturing is tying the cost of that manufacturing process (activity) with producing just enough product to fill the order (speed, customer satisfaction). With determining more direct costs tied to that product, the company can more accurately set a price. Also, allocating overhead based on time in process/production will more accurately reflect cost versus using labor hours or materials. “Essentially, this time-based cost accounting approach assesses and allocates overhead costs to predefined durations of manufacturing cycle time — not to direct labor or materials consumed in the generation of a product or service. The less time consumed in a productive process, the lower the overhead value applied to a calculated cost and vice versa.” (Morgan. 2015.)
Reference:
Wild & Shaw. (2016). Managerial Accounting.
Moran, J. (2015). When operational performance and financial performance measurement collide. Food Manufacturing, Retrieved from https://search.proquest.com/docview/1655802263?accountid=35796
Expert Answer
- Activity based management focuses on the management activities like planning, execution and measurement to improve the value received by customer and thereby increasing the profit. In Activity-based management requires an understanding of the link between activities that consume resources and the costs associated with those resources. Activity-based management can be summed as an production approach to management that includes:
- Identification the major operating activities.
- Assessing quantum of resources consumed by each activity.
- Categorizing the activities as either adding value to a product or service or not adding value.
- The rationale behind just-in-time (JIT) inventory and production management system is that no materials are purchased and manufactured until they ordered by the customer or required for use. In JIT method a company tries to reduce all inventory holdings to their absolute minimum. Basic features of JIT includes: 1.Maintaining minimum inventory levels.2.Purchase materials and produce as needed, in smaller lot sizes.3.Perform quick, inexpensive machine setups. 4.Maintain high levels of product quality.5.Encourage continuous improvement of the work environment. whereas, Under traditional operating environment, a company usually was having,large amounts of inventory, huge srt up time, batch wise production.
Hence, Both in ABM and JIT system, it analyses the process and identify value-adding and non value-adding activities. They both strive to:
- Eliminate or reduce non value-adding activities.
- Improve the assessment and allocation of available resources.
- Improved quality, efficiency and productivity of the resources.
- Maximise profit by maximizing customer satisfaction.
