Term
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Definition
| creates two cost pools (product costs and SG&A costs); product costs are transferred to the channels based on standard unit costs and the product mix sold through that channel; SG&A expenses typically are allocated to the channels based on net revenue or sales volume by channel. |
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Term
| pros and cons of standard product costing |
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Definition
pro: this can work if the org. is aligned by channel or customer group
con: most are aligned by region, product line, or facility locale; this makes translation to channel or customer difficult |
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Term
| significant drawbacks of standard product costing |
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Definition
| distorts costs; makes no attempt to adjust product costs, so analysis can be misleading. |
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Term
| activity based costing (ABC) |
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Definition
| overhead costs are allocated to product lines more logically and products are costed more accurately. |
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Term
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Definition
| while we are allocating cost in a more logical and rigorous manner, the analysis is based on the assumption that all costs are product-driven and must be traced or allocated to products. |
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Term
| strategic cost management approach |
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Definition
| recognizes that cost is not driven solely by the products produced but also by the customers served and the channels through which the product is offered. |
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Term
| why is the strategic cost management approach superior to the ABC approach? |
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Definition
| the restriction that all costs must be related to products allows the development of a more accurate view of cost consumption. under ABC, it is not possible to detect if product costs were high due to certain customer groups or to certain channels. under SCM, we get additional information regarding product-related costs, channel-related costs, and customer-related costs. |
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Term
| developing accurate channel and customer costs: guidelines |
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Definition
include all costs (direct, indirect, overhead, implicit).
focus on relevance over precision.
use issues to drive analysis. |
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Term
| four-step process to developing accurate channel and customer costs |
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Definition
1. separate the organization's cost structure into activity and nonactivity costs.
2. identify the cost behavior of all activity and nonactivity behavior.
3. trace these costs to the individual products, channels, and customers.
4. translate the product, channel, and customer cost elements into a total cost view for the business. |
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Term
| product-related activity costs |
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Definition
schedule production
setup and changeover for machine A
test quality parameters
maintain equipment |
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Term
| product-related nonactivity costs |
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Definition
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Term
| channel-related activity costs |
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Definition
attend trade shows
order/invoice processing
sales force
telemarketing
advertising brand A
arrange for shipping |
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Term
| channel-related nonactivity costs |
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Definition
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Term
| customer-related activity costs |
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Definition
EDI and computer interfaces to customer
special shipping and handling requests
collect bad debt
technical support for customer A
prepare/delvier annual sales bid |
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Term
| customer-related nonactivity costs |
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Definition
bad debt expense
customer rebates |
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Term
| three different types of costs |
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Definition
product-related
channel-related
customer-related |
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Term
| product view vs. channel/customer view |
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Definition
| traditional ABC is most consistent with the way corporate planners think about business strategy and planning (by product area). but, as companies develop future business plans, understanding the cost and profitability of serving different channel and customer groups will become critical to making good business decisions. |
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Term
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Definition
| best results have been obtained when using this approach; the type and the nature of the decision being made should drive the level of detail and direction of analysis. |
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