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A number of distinct practical stages in the ABC implementation are as follows :
1. Staff training : The co-operation of the workforce is critical to the successful implementation of ABC. They are closest to the process and most aware of the problems. Staff training should be, as far as possible, jargon-free, and create an awareness of the purpose of ABC. It should be non-threatening in nature, stressing that increased efficiencies resulting from a successful implementation will mean rewards not redundancies. The need for the co-operation of staff in the concerted team effort, for mutual benefit, must be emphasised throughout the training activity.
2. Process specification : Informal, but structured, interviews with key members of personnel will identify the different stages of the production process, the commitment of resources to each, processing times and bottlenecks. The interviews will yield a list of transactions which may, or may not, be defined as ‘activities’ at a subsequent stage, but in any case provide a feel for the scope of the process in the entirety.
3. Activity definition : The problem must be kept manageable at this stage, despite the possibility of information overload from new data, much of which is in need of codification. The listed transactions must be rationalised in order to aggregate those in similar categories and eliminate those deemed immaterial. The resultant cost pools will likely have a number of different events, or drivers, associated with their incurrence.
4. Activity driver selection : A single driver covering all of the transactions grouped together in an ‘activity’ probably does not exist. Multiple driver models could be developed if the data were available, but cost-benefit analysis has rarely shown these to be desirable. The intercorrelation of potential activity drivers will probably be so strong as to suggest that it really does not matter which one is selected. This argument might be employed to avoid the costly collection of data items otherwise not monitored, nor easily
accessible.
5. Costing : A single representative activity driver can be used to assign costs from the activity pools to the cost objects. If, for example, the number of engineering set-ups has been identified as a driver of process costs and the total set-up cost is $40,000 for a company producing four products (A, B, C, D) then the number of set-ups per product can be used to assign these costs. If product A requires 2 set-ups; B4 set-ups ; C24 and D10, then the average cost per set-up of $40,000/40 set ups = $1,000, a misleading figure taken at face value, which does not imply the different demands of the set up resource made by the different products. However, total set-up costs can be distributed to product groups in proportion to use, i.e., A : $2,000, B : $4,000, C : $24,000 and D : $10,000 and then assigned to individual units of product in proportion to the total level of output.
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