Principles of cost analysis and management allocate single cost pool to users

• Standard: with at least 80% accuracy • Explain how poor cost information encourages undesired behaviors • Calculate driver rate • Calculate proportion... Managerial Costing Termsraw a

Trang 1

Allocate Single Cost Pool to Users

Principles of Cost Analysis and

Management

Trang 2

Have you ever been here?

Trang 3

Terminal Learning Objective

• Task: Allocate Single Cost Pool to Users

• Condition: You are a cost advisor technician with access

to all regulations/course handouts, and awareness of

Operational Environment (OE)/Contemporary

Operational Environment (COE) variables and actors.

• Standard: with at least 80% accuracy

• Explain how poor cost information encourages undesired

behaviors

• Calculate driver rate

• Calculate proportion

Trang 4

A Broad Definition of Managerial Costing

raw accounting data

managerial costing translation

managerially useful information

Trang 5

Why Is This Translation Needed?

• Accounting Systems usually measure input or source costs

• Labor, overhead, materials

• Salaries, benefits, supplies, contracts

• Managers want measurements based on

output or consumption

• Product, service, project

• Consuming organization, customer

Trang 6

Managerial Costing Terms

raw accounting data

managerial costing translation

managerially useful information

=

cost pool

method of distribution

cost object

Trang 7

• Salary and benefits, supplies,

travel, etc in an airfield

operations center

• Utility bills for a garrison

cost pool

Trang 8

• Method of distribution:

• The mechanics of deriving

management information from

the cost pool

• Example:

• Determine unit cost by

adding all input costs and

dividing by

number of units

method of distribution

Trang 9

• 120mm tube product cost

• Morale, welfare, recreation cost

• Armor school cost

cost object

Trang 10

What is Allocation?

• Allocation:

• A method of distribution that

distributes cost pool to cost

objects in the same

proportion as cost driver

• Example:

• Distributing the cost of utilities

to occupants in the same

proportion as space occupied

allocation based on cost driver

Trang 11

The Mechanics of Allocation

• Allocation is a basic

technique of activity based costing (ABC)

• Becoming an expert

is required but easy

• Allocation mechanics

excel spreadsheet makes it even easier

allocation

based on

cost driver

Trang 12

Two Allocation Methods

• Yield same results

• Represent the same underlying algebra

Trang 13

Reconciling the Two Methods

Total Cost Pool Total Number of Driver Units * Number of Driver Units Used

Number of Driver Units Used Total Number of Driver Units * Total Cost Pool

Number of Driver Units Used * Total Cost Pool

Total Number of Driver Units

Trang 14

Reconciling the Two Methods

Total Cost Pool Total Number of Driver Units * Number of Driver Units Used

Number of Driver Units Used Total Number of Driver Units * Total Cost Pool

Number of Driver Units Used * Total Cost Pool

Total Number of Driver Units

Trang 15

Split the Dinner Check

Thank You

Fillet and Lobster 35.00 Chicken Kiev 15.00 Top Sirloin 20.00 Caesar Salad 9.00 Coffee 2 @1.00 2.00 House Wine 4 @5.00 20.00 Champagne 24.00 Ice Cream 4.00 Chocolate Cheesecake 6.00 Sampler 10.00 Soup/Salad 8.00 Aperitif 7 00

Trang 16

Identifying Key Information

• What is the cost pool?

• The dinner check of $160

• What are the cost objects?

• Bob, Carol, Ted and Alice

• What is the cost driver?

• Number of persons (or eaters)

Trang 17

Trang 18

Trang 19

Trang 20

Enter the Names of the Cost Objects here:

Enter the Name of the Cost Driver here:

Reset

Trang 21

Allocation by Rate Method

• First, calculate the driver rate:

Total cost pool Total driver units

Cost pool = $160

Total driver units = 4 eaters

Rate = $40/eater

Trang 22

Cost pool = $160

Rate = $40/eater

Trang 23

Cost pool = $160

Trang 24

• Second, multiply by driver units used by each cost object:

• Carol = 1 eater * $40/eater = $40

• Ted = 1 eater * $40/eater = $40

• Alice = 1 eater * $40/eater = $40

• What if Bob and Carol are a couple and Bob is

paying for them both?

Trang 25

• Bob = 1 eater * $40/eater = $40

• Ted = 1 eater * $40/eater = $40

Trang 26

• Bob = 1 eater * $40/eater = $40

• Ted = 1 eater * $40/eater = $40

Trang 27

1 Determine Overhead Rate:

Total Cost ÷ Total eaters = Rate per eaters

160

$ ÷ 4 = $ 40

2 Compute Allocation: Usage by Cost Object x Rate = Allocation Bob 1 x $ 40 = $ 40

Ted 1 x $ 40 = $ 40

Carol 1 x $ 40 = $ 40

Alice 1 x $ 40 = $ 40

Total $ 160

Reset

Trang 28

Allocation by Proportion Method

• First, calculate each cost object’s proportion:

Driver units used Total driver units

• Carol = 1 eater/4 eaters = 25%

• Alice = 1 eater/4 eaters = 25%

Trang 29

• First, calculate each cost object’s proportion:

Driver units used Total driver units

• Bob = 1 eater/4 eaters = 25%

• Carol = 1 eater/4 eaters = 25%

• Ted = 1 eater/4 eaters = 25%

• Alice = 1 eater/4 eaters = 25%

Trang 30

• Second, multiply each cost object’s proportion

by total cost pool

• Carol = 25% * $160 = $40

• Alice = 25% * $160 = $40

Trang 31

by total cost pool

• Bob = 25% * $160 = $40

• Carol = 25% * $160 = $40

• Ted = 25% * $160 = $40

• Alice = 25% * $160 = $40

Trang 32

by total cost pool

• Bob = 25% * $160 = $40

• Carol = 25% * $160 = $40

• Ted = 25% * $160 = $40

• Alice = 25% * $160 = $40

Trang 33

Allocation by Proportion

33

1 Determine Proportion of Consumption

Usage by Cost Object ÷ Total eaters = %

2 Multiply Proportion by Total Cost

Cost Object % x Total dinner check = Allocation

Bob 25% x 160 = $ 40

Ted 25% x 160 = $ 40

Carol 25% x 160 = $ 40

Alice 25% x 160 = $ 40

Total $ 160

Trang 34

Print Reset

Trang 35

Check on Learning

• What is the rate per hour when the cost pool totals $30,000 and the total hours are 500?

• One of the cost objects uses 50 hours or

resources from the cost pool described above What is its proportion?

Trang 36

Cross Subsidization

Is This Fair?

Trang 37

Incremental Effects

What Happens if Bob Spends $10 More?

Original

Incremental Change

Trang 38

Bob’s Actual Consumption And Payment

Trang 39

Allocation: a Zero-Sum Game

• The Total is Constant

• Changing allocation basis simply redistributes cost

• Increased Allocation for One Cost Object

• Decreases the allocation for other cost objects

• Sometimes called “Balloon Squeezing” or

“Peanut Butter Effect”

Trang 40

Measurement Effects Motivation

• Managerial costing inevitably impacts behavior

• Design of managerial costing systems must

recognize and anticipate this effect

• Consider in this example

• What iIncentives exist to spend more?

• What incentives exist to spend less?

• What would you do if you went to dinner with

them tonight?

Trang 41

• Why did allocation based on number of

eaters fail to reflect resource consumption?

• What are the effects of incorrect allocation?

• What might be a better method of

allocation in the dinner check case?

Check on Learning

Trang 42

Practical Exercises

Định dạng
Số trang	42
Dung lượng	781,62 KB