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David Norman & Associates

*Costing, including Activity Based Costing

Questions to Ask

  1. Do you believe reported costs?
  2. Are Marketing and Sales areas unwilling to use existing cost information for product pricing?
  3. Are overhead rates high?
  4. Is direct labor a small portion of manufacturing cost?

Description of Service

Activity Based Costing (ABC) systems collect financial and operating performance information about activities in which an organization is engaged during its production of goods or performance of services.

Benefits

  • Highlights non-value added activities
  • Improves understanding of change in cost behavior patterns
  • Develops a value-chain perspective
  • Focuses on activities as the ultimate consumers of organizational resources
  • Illustrates cross-functional interactions and costs

Examples

A manufacturer of textile machinery parts desired an improved costing system based on ABC concepts. Results -- Development of a costing system that enabled the organization's management to change the manufacturing flow for improved design for manufacturability.

A manufacturer of metal parts desired an ABC system to provide better information for pricing and profit improvement. Results -- The new costing system provided information about several product lines and manufacturing processes that enabled management to reprice recouping the consulting fees immediately and, thereafter, improving profitability in the longer-term.

A major municipality wanted to understand better the costs associated with providing service to constituents and undertook departmental costing projects. Results -- An improved understanding of costs and a methodology to outsource services and measure effects of private sector proposals.


All contents Copyright 1997, 1999, 2000 David Norman & Associates. All Rights Reserved.