Using ABC to Support Continuous Improvement

Abstract

National Semiconductor Corp. (NSC) developed a 2-dimensional activity-based costing (ABC) model that is a major advance for cost management. It turns ABC into a true cost management system that supports product costing and performance improvement. Modern ABC models contain 2 dimensions: a cost view and a process view. The key to building a 2-dimensional ABC model is to use micro and macro activities. Micro activities are the units of work in a department that are managed on a day-to-day basis. Macro activities are summaries of work that facilitate reporting accurate product costs and yield the cost of internal supplier-customer relationships. NSC's ABC model shows how micro activities are combined into macro activities using 3 rules. It reveals a 2-level model structure that includes both responsibility and economic information. In addition to improving the quality and flexibility of ABC information, the model reduces the costs and complexity of ABC models.