An activity-based cost management system

Abstract

Technological advances in manufacturing industries have changed the processes involved in producing end-products, the elements within the processes, the end-products themselves, and, in turn, the management and control of these processes. Much of what was performed by direct labor is now performed by automated machinery with the aid of computers. Thus, the contribution of direct labor is diminishing while that of indirect labor is steadily increasing. Also, nonvalue-added process activities are being identified and eleminated to streamline processes; products are being designed for manufacturability and maintainability, organizational lines are fading as more work is being performed by cross-functional teams; and management schemes are having to adapt to enable effective control in this new manufacturing environment. Cost and performance information which reflect the actual nature of operations are vital for effective management in these high-tech environments, and information is needed to facilitate continuous process improvement, effective product costing, and proactive cost estemating. such information must be detailed enough to support operational decisions regarding process improvement initiatives. This paper present a model of a computerized cost management information system in such an environment. This system relates cost and performance information to the individual activity level and associates activities with the processes by which goods and services are designed,procured, produced, delivered and supported. In this paper,we also discuss various analysis and design issues associated with the development of this activity-based cost information system.