Scholars Tout Benefits of Activity-Based Costing - Assignment Example

Back ground of HP INC HP is the world's largest IT Company with a global supply chain, who is aiming at being a world leader in marketing and financial services. Stanford University classmates Bill Hewlett and Dave Packard founded the company in 1939.HP is also a technology solutions provider to consumers, businesses and institutions globally. The company is also keenly aware of being a global citizen and is aiming at being responsible by prioritizing supply chain responsibility, climate and energy, and product reuse and recycling. (www.hp.com) Operations and Back ground Info: HP operates as part of a complex global network through which thousands of companies and organizations collaborate to provide its products and services to millions of customers' world wide. In a move to improve profitability the company is planning to outsource PC manufacturing facilities worldwide. This would help the company to increase profitability by focusing on its core strengths which includes supply chain management, new products and services development and supplier management. (www.hp.com) Management Intent: The management believes that as everything as a Service evolves, there is an opportunity to reshape the computing industry forever and, more importantly, create more dynamic services that enrich our everyday lives and improve how we do business. To realize this potential, the technology industry must innovate at a higher level of intelligence into the next generation of devices, networks and software. When we are successful in providing better user experience, we will be poised for the next wave of growth. (www.hp.com) Feedback loops Employed by HP: Customer groups in various markets - Speed quality and flexibility are some of the requirements of the customer groups as far as technology is concerned. Manufacturers like HP would like to classify their customers as large businesses, individuals with home office and the younger generation. Further this would also give an insight to the market size and location, stage of the product life cycle in each of these consumer groups and characteristics and influences of the buyers (demographic details).Global marketers like HP will would resort to this method of feedback which brings into focus the basic information necessary for development of a strategic plan for production.Survey on Product technology - This form of feedback involves the markets being broken down into segments. Volumes of requirement are forecast to identify and explore the requirements for niche products and otherwise. This feedback would also give the companies required product mixes, complexity, differentiation and frequency of manufacturing required. The purpose of selecting these loops was to bring to attention that the major deciding factors of cost in production are related to these. Balancing feedback brings in optimum product quality at the lowest possible pricing leads to goal seeking behavior. Complex systems are composed of multiple feedback loops laid upon one another. How this can be used in OD Hp can make use of these loops by empowering the team of people involved in these activities, by which the results would be extraordinary. The company can help teams involved to manage culture, process, systems and relationships which in turn would be effective and would also reflect on Organizational development. People learn together by submitting their shared vision to testing. When complex dynamics exist, a shared vision allows organizational members to examine assumptions, search for leverage points, and test different policy alternatives. This level of learning often requires simulation, which is a much more specialized systems technique. (Larsen, K., McInerney) Effects of feedback loops on Org Effectiveness Long and Short Term: The effects of these feedback loops on organization effectiveness are as follows Long Term: Organizations strive to reach their potential by sharing this vision of worthy goals with employees. There is a Lifelong commitment to high quality work can result when teams work together to capitalize on the synergy of the continuous group learning for optimal performance. Short Term: The personal goals of the employee would be in alignment with the mission of the organization. There evolves a system where interrelationships and processes depends on each other. There is a Lifelong commitment to high quality work can result when teams work together to capitalize on the synergy of the continuous group learning for optimal performance. Overview of Product costing Cost classification is the process of grouping costs depending on their classification. It may be classified as material, labour, expenses and depending on the purpose and nature of the business. Direct costs: Costs that can directly attribute to a cost centre is called direct cost e.g.: Materials used, labour etc. Indirect costs: Are those which cannot be conveniently identified with a particular cost centre. E.g.: building rent, management salaries, depreciation of machinery. Overhead Costs: Indirect costs that cannot be identified with a particular cost centre or cost unit, but which can be absorbed by cost centre is called Overhead costs. These are costs over and above the prime cost. Fixed overheads: Fixed overhead costs are those which remain fixed in total amount with increases or decreases in the volume of output for a given period of time. Fixed overheads are incurred by a firm even when there is no production. Variable Overhead costs are those which vary in total in proportion with the volume of output. E.g. are indirect labour, tools, defective work loss, idle time etc. Activity based costing: Activity based costing is an accounting methodology that assigns costs to each activity involved in production/process, rather than products or services, based on their use of activities. This enables resource and overhead costs to be broken up and more accurately assigned to the products and the services that consume them. (Katy Saldarini) Elements of ABC are as follows Product Costing is the process of tracking various expenses that are accrued in the production and sale of a product, from raw materials purchases to expenses associated with transporting the final product to retail establishments. It is widely regarded as an extremely important component in evaluating and planning overall business strategies Cost Pool is where costs are accumulated that relate to a single activity measure in an activity-based costing system. Activity Base is the process performed by people and machines. Cost Objective are the products, services produced .Activity based costing includes activities and processes before and after the reengineering project, the frequency and cost of the above and the result of the scenario of a possibility of the project not taking off at all. It also includes the processes which provide value to customers and also result in operational savings .Cost driver are the factors that affect the cost of an activity, e.g. poor quality. (Nancy Maluso) Activity-based costing provides such detailed information to managers to make sound business decisions. It highlights deficiencies so managers can redirect resources to where they are most beneficial and can indicate when gradual changes have had a large impact on cost activities. An ABC approach will account for the frequency and cost of the activity/process before and after the product is made. (Nancy Maluso) : Works Cited http://www.hp.com/hpinfo/abouthp/studentinfo/index.html Activity Based Costing (ABC): What is it and how can reengineering teams use it, retrieved August 18, 2007 from: http:/www.porsci.com/abc1.htm by Nancy Maluso Saldarini, K. (2000). Scholars tout benefits of activity-based costing, retrieved August 18, 2007 from: http://www.govexec.com/dailyfed/0200/022300k1.htm Larsen, K., McInerney, C., Nyquist, C., Santos, A., & Silsbee, D. (1996)Learning Organizations (Part VI: Systems Thinking) Retrieved from http://home.nycap.rr.com/klarsen/learnorg/ Read More