Managing Cash Flow

Activity Based Costing Principles 157
• Customer complaints (returns, rejects, complaints)
• Idle inventory (raw material, work in process, finished goods)
• Late deliveries (vendors, customers)
• Change orders (purchasing, manufacturing, shipping)
• Processing (manufacturing, purchase, and sales orders)
• Recording (purchase requisitions, time cards, move tickets, etc.)
• Quality control (receiving, in process, final)
• Equipment (idle time, setups, maintenance, downtime)
• Production schedule changes (moves, wait time, lost time)
• Customer service (late, inadequate, nonresponsive)
COST IS NOT ALWAYS MEASURED IN DOLLARS.
Exhibit 5.12
Nonfinancial Cost Measures
any or all of these concepts as appropriate. The more concepts such as ABM and
ABC that study team members are aware of as they analyze operations and related
costs, the greater the results to be achieved. Since one of the major goals of the
cash management study is to bring the company up to the optimum level of best
practices in a program of continuous improvements, such knowledge of other
concepts helps to ensure this will happen.
THE ABM GOAL IS TO INCREASE VALUE TO
CUSTOMERS AND PROFITS TO THE COMPANY.
In conducting the cash management study, the company should be aware of
the yardsticks, criteria, or benchmarks for best practices and improvements. A list
of nonfinancial cost measures to consider in looking at ABM/ABC principles is
shown in Exhibit 5.12. In addition, the company should be aware of the costs
associated with not doing what is expected. A summary of the cost of such noncompliance
elements associated with not doing what is expected is shown in
Exhibit 5.13.
Traditional versus ABC Cost Concepts
TRADITIONAL COST ACCOUNTING MAY CREATE
MORE PROBLEMS THAN SOLUTIONS.