Explicit Cost Dynamics: An Alternative to Activity-Based Costing

239 Pages·2001·1.7 MB·English

by  Reginald Tomas Yu-Lee

B u s i n e s s C u l i n a r y A r c h i t e c t u r e
C o m p u t e r G e n e r a l I n t e r e s t
C h i l d r e n L i f e S c i e n c e s B i o g r a p h y
A c c o u n t i n g F i n a n c e M a t h e m a t i c s
H i s t o r y S e l f - I m p r o v e m e n t H e a l t h
E n g i n e e r i n g G r a p h i c D e s i g n
A p p l i e d S c i e n c e s P s y c h o l o g y
I n t e r i o r D e s i g n B i o l o g y C h e m i s t r y
e
WILEY
B O O K
WILEY
JOSSEY-BASS
PFEIFFER
J.K.LASSER
CAPSTONE
WILEY-LISS
WILEY-VCH
WILEY-INTERSCIENCE
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EXPLICIT COST
DYNAMICS
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EXPLICIT COST
DYNAMICS
An Alternative to
Activity-Based Costing
Reginald Tomas Yu-Lee
John Wiley & Sons, Inc.
New York • Chichester • Weinheim • Brisbane • Singapore • Toronto
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Copyright © 2001 by John Wiley and Sons, Inc. All rights reserved.
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To my daughter, Erin, and my father, Rudolph
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EXPLICIT COST
DYNAMICS
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Preface
I once was asked by a student if increases in productivity reduce costs.
I basically blew off his question because the answer was obvious. Of
course they reduce costs. His response was, “If no one was fired, how
have we saved money?” I gave the stock answers, but as I tried to
create that cloud of complexity often used to confuse students to
the point where they give up hope, I realized that he was right. The
ultimate question was, “Why was he right?”
Numerous debates, academic exercises, and consulting en-
gagements have led to the development of explicit cost dynamics
(ECD), a nonallocation cost management system that provides cost
information based purely on bottom-line cost dynamics. With the
bottom line as a basis, the implementation of ECD strives to provide
decision makers with the relevant tools and information to under-
stand the bottom-line impact of past, current, and future activities. It
is the concept that ultimately proves why my student was right, for
it eliminates the ambiguity created by allocating costs. It provides
explanations regarding how to effectively bid on projects without
allocating and still ensure the desired bottom line. It explains why a
plant manager’s approach is better for the company from a bottom-
line perspective even though the accountant’s measures suggested
otherwise. As a cost management tool, it helps to explain why ideas
such as Just-in-time manufacturing and Theory of Constraints seem
to work, and it can explain why bad implementations of either will
not work. It provides decision makers with the necessary information
to operate their organizations without the confusion created by allo-
cating costs.
Many different developments have led to creation of the ECD
concept. First, while working for Business Dynamics & Research, I en-
countered an interesting scenario with a colleague. Our client, a
wholesaler, won a large percentage of its bids below a certain dollar
threshold. Above that threshold, it lost every bid over a given period
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