Bài giảng activity based costing f5 acca

Activity-Based Costing (ABC) - ACCA F5

• Topic: Costing method for accurate overhead allocation.

• Purpose: Supports management decisions (e.g., pricing,

cost control)

• 2025 Updates: Sustainability, digital exams, global

standards

Role in F5 Performance Management

• F5 Scope: Setting objectives, decision-making,

performance measurement

• ABC Role: Provides precise cost data for informed

decisions

• Relevance: Enhances cost allocation in complex processes.

Relation to Other F5 Topics

• F5 Areas:

– Information Collection and Analysis (ABC is one of five

costing methods)

– Management Decision-Making (e.g., pricing, profitability) – Budgeting and Control

– Performance Measurement and Control

• Connection: ABC data drives pricing and cost

management decisions

What is ABC?

• Definition: Allocates overheads based on cost drivers.

• Limitation of Traditional Costing: Single volume-based

rate (e.g., labor hours) is inaccurate for complex processes

• ABC Solution: Uses multiple cost drivers for fair allocation.

Cost Drivers in ABC

• Cost Driver: Factor significantly impacting activity costs.

• Examples:

– Number of setups (machine setup)

– Number of orders (order processing)

– 2025: Energy-efficient setups (sustainability)

• Purpose: Links costs to activities driving them.

Steps to Apply ABC

• Identify key support activities (e.g., setup, order processing).

• Allocate overhead costs to activities.

• Select cost drivers for each activity.

• Calculate allocation rates for cost drivers.

• Allocate overheads to products and compute costs.

ABC Example: Data Setup

• Labor Cost: $5/hour; Overheads: $30,800 (Setup: $10,920;

Variable: $3,080; Promotion: $9,100; Material Handling:

$7,700)

Example: Absorption Costing

• Total Labor Hours: 10 Ư 1 + 10 Ư 3 + 100 Ư 1 + 100 Ư 3 =

440

• Overhead Rate: $30,800 ư 440 = $70/hour.

Product Material ($) Labor ($) Overhead ($) Total ($) Unit Cost ($)

• Note: Overhead (chi phờ sxn xuòt chung) allocated by labor

hours

ABC Example: Steps 1-2

• Step 1: Support Activities: Setup, short-term variable,

promotion and sales, material handling

• Step 2: Allocate Overheads:

– Setup: $10,920

– Variable: $3,080

– Promotion: $9,100

– Material Handling: $7,700

ABC Example: Step 3 - Cost Drivers

• Cost Drivers for chi phờ sxn xuòt chung:

– Setup, Promotion, Material Handling: Number of batches (14 total)

– Variable: Labor hours (440 total)

ABC Example: Step 4 - Allocation Rates

• Chi phờ sxn xuòt chung allocation rates:

– Setup: $10,920 ư 14 = $780/batch

– Variable: $3,080 ư 440 = $7/hour

– Promotion: $9,100 ư 14 = $650/batch

– Material Handling: $7,700 ư 14 = $550/batch

ABC Example: Step 5 - Allocate Overheads

Product Setup ($) Variable ($) Promotion ($) Material Handling ($)

W 2 Ư 780 = 1,560 10 Ư 7 = 70 2 Ư 650 = 1,300 2 Ư 550 = 1,100

X 2 Ư 780 = 1,560 30 Ư 7 = 210 2 Ư 650 = 1,300 2 Ư 550 = 1,100

Y 5 Ư 780 = 3,900 100 Ư 7 = 700 5 Ư 650 = 3,250 5 Ư 550 = 2,750

Z 5 Ư 780 = 3,900 300 Ư 7 = 2,100 5 Ư 650 = 3,250 5 Ư 550 = 2,750

ABC Example: Final Costs

Product Material ($) Labor ($) Overhead ($) Total ($) Unit Cost ($)

ABC vs Absorption Costing

Aspect Absorption Costing ABC

Allocation Single rate (labor hours) Multiple cost drivers

Accuracy Inaccurate for complex processes More accurate, activity-based Advantages Simple, cost-effective Supports decision-making

Disadvantages Misallocates costs Time-consuming, costly

Analysis of Costing Differences

• Absorption Costing: Undercosts low-volume products (W,

X) and overcosts high-volume products (Z)

• ABC: Allocates costs based on activity consumption,

ensuring accuracy

• Implication: Incorrect pricing (e.g., losses on W, X) if using

absorption costing

Exercise: Which Statements are True?

• A The cost driver for quality inspection is likely to be batch size.

• B The cost driver for materials handling and dispatch costs is

likely to be the number of orders handled

• C In the short run, all overhead costs for an activity vary with

the amount of cost driver

• D A cost driver is an activity-based cost.

Exercise: Solution (Part 1)

• A (False):

– Quality inspection typically driven by number of units or batches inspected

– Batch size (volume per batch) is unsuitable as it implies larger batches incur more costs, despite standardized

inspection processes

– Example: Inspecting 100 units in one batch requires the same steps as 50 units

• B (True):

– Number of orders directly drives material

handling/dispatch costs

– More orders require more handling, packing, and shipping efforts

Exercise: Solution (Part 2)

• C (False):

– Not all overhead costs vary with cost drivers; some (e.g., rent, depreciation) are fixed in the short run

– Example: Facility costs remain constant regardless of

setup frequency

• D (False):

– Cost driver is a factor causing costs (e.g., number of

setups), not the cost itself

– ABC uses cost drivers to allocate activity-based costs, not define them

• Answer: B.