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A Tool for Manufacturing Excellence

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Submitted By y2k01
Words 4996
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Activity-Based Costing: A Tool for Manufacturing Excellence
ABC is a strategic weaoon in the Quest for comoetitive oosition.

By Peter B.B. Turney, Ph.D.

This article exammes rne role of actiVity-based costing in the achievement of manufacturing excellence. It describes manufacturing excellence and the product cost information requirements of managers who seek to achieve it. It shows how conventional product costing fails to meet these needs, and demonstrates how activity-based costing corrects these deficiencies. It explains how managers in manufacturing companies can use activitybased costing for strategic, product design, and continuous improvement purposes. Finally, the article lays to rest fears that activity-based costing may be too costly and complex to be compatible with manufacturing excellence. and sustaining a comA chievingadvantage via attention petitive manufacturing excellence requires to all aspects of manufacturing performance. This attention requires that managers have information that helps them choose correct strategies, improve product design, and remove waste from operating activities. Conventional product costing systems provide little information on these sources of competitive advantage. Schrader Bellows found that the product costs generated by their conventional system were so inaccurate they encouraged management to adopt strategies which inhibited the improvement of manufacturing.' Product designers

at the Portable Instrument Division of Tektronix reacted to inaccurate cost information by selecting designs that increased cost without adding value to the customer. 2 The conventional system at this Division also encouraged management of the allocation and absorption of overhead rather than the elimination of waste.' . In contrast, activity-based costing is a costing technology that provides information for achieving excellence in

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