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WELCOME TO YOU ALL

WELCOME TO YOU ALL. Presentation by. PROF.S. CHAKRABORTY INDIAN INSTITUTE OF MANAGEMENT, LUCKNOW. PROCESS VALUE ANALYSIS.

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WELCOME TO YOU ALL

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  1. WELCOME TO YOU ALL Presentation by PROF.S. CHAKRABORTY INDIAN INSTITUTE OF MANAGEMENT, LUCKNOW

  2. PROCESS VALUE ANALYSIS Traditional cost accounting methods typically assign manufacturing costs to products based on the products’ direct labor content with no differentiation for the activities the products actually require. Activity based costing (ABC) recognizes that costs are driven by factors or activities other than volume and direct labor.

  3. AN ABC SYSTEM assigns costs to products based on their consumption of activities, such as order preparation, storage time, wait time, engineering changes and internal product movement. It provides companies with better product costs.

  4. PROCESS VALUE ANALYSIS (PVA) is a powerful analytical method financial managers can use to analyze cost structure. It is foundation for ABC. PVA, a systematic approach for understanding the manufacturing process, uses the following procedure.

  5. [1] Prepare a flowchart for each manufacturing process step with simple boxes and circles to create a visual image of the product as it moves through the plan. Record the average time the product or component part remains at each step.

  6. Determine whether the step is value added (the customer desires that step to convert the product to his or her specifications) or non value added (the customer did not ask for it, but it is done anyway because the company is inefficient). [2]

  7. Get to the rationale for each manufacturing step. Apply costs to manufacturing steps and then to the products that use these steps. Summarize steps and costs into clear, concise information that can be easily grasped by management. [3]

  8. [4] Identify alternative courses of action (for example, to reduce costs, change processes or change product mixes) to facilitate management decisions.

  9. VALUE ADDED VS NON VALUE ADDED PROCESS STEPS Receive Store Move OP1 Move & OP2 Store Ship materials wait NVA NVA NVAVA NVA VA NVA VA 1 5 11 2 1 8 1 Total cycle timeVA 3 NVA 17 TOTAL 20 Annual cost : Rs.1.2 million

  10. Thank You

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