Chapter 5 - Activity-based costing and management. After completing this chapter, you should be able to: Compute product costs under a traditional, volume-based product-costing system; explain how an activity-based costing system operates, including the use of a two-stage procedure for cost assignment, the identification of activity cost pools, and the selection of cost drivers; explain the concept of cost levels, including unit-level, batch-level, product-sustaining-level, and facility-level costs;...
Trang 1Activity-Based Costing and Management
Chapter 5
Trang 2Traditional, Volume-Based
10 runs of
400 units
Trang 3Traditional, Volume-Based
Product-Costing System
Additional information includes:
Mode I Mode II Mode III
Direct labor (hr/board) 3 4 2
Setup time (hr/run) 10 10 10
Machine time (hr/board) 1 1.25 2
Manufacturing overhead is determined as follows
Trang 4Traditional, Volume-Based
Product-Costing System
Budgeted manufacturing overhead $3,894,000
Budgeted directlabor hours 118,000 = $33 per hour
Trang 5Traditional, Volume-Based
Product-Costing System
With these product costs, Aerotech established target
selling prices (Cost × 125%).
209.00 x 1.25
Trang 6Activity Based Costing System
(ABC)
ABC systems follow a twostage twostage procedure to assign
overhead costs to products.
Stage One
Identify significant activities and assign overhead costs
to each activity in proportion to resources used.
Stage Two
Identify cost drivers appropriate to each activity and
allocate overhead to the products.
Trang 7Overhead Costs
Total budgeted cost = $3,894,000
Activity Cost Pools
Machinery
cost pool
$1,212,600
Setup cost pool
$3,000
Engineering cost pool
$700,000
Facility cost pool
Identification
of Activity Cost Pools
Activities needed to support
an entire product line
Activity required in order for the production process to occur.
Trang 8Receiving/Inspection cost pool $200,000
Material-Handling cost pool $600,000
Quality-Assurance cost pool $421,000
Packaging/Shipping cost pool $250,000
Machinery
cost pool
$1,212,600
Setup cost pool
$3,000
Engineering cost pool
$700,000
Facility cost pool
Trang 9Machinery Cost Pool
Total budgeted cost = $1,212,600
Maintenance Depreciation Computer Support
Lubrication Electricity Calibration
Activity
cost pool
Trang 11Calculation of
total
total setup cost setup cost
Setup Cost Pool
Total budgeted cost = $3,000
Activity
cost
pool
STAGE ONE
Trang 13Engineering Cost Pool
Total budgeted cost = $700,000
Activity
cost pool
STAGE ONE
Trang 14Engineering Cost Pool
Total budgeted cost = $700,000
Trang 15Facility Cost Pool
Total budgeted cost = $507,400
Activity
cost
pool
STAGE ONE
Trang 16Budgeted Facilities Cost $507,400 Budgeted Direct-Labor Hours 118,000
Trang 17Other Overhead Costs
Board Overhead × % ÷ Units = Cost/Unit
Packaging and Shipping Cost Pool
Trang 18Board Overhead × % ÷ Units = Cost/Unit Mode I $ 250,000 × 4% ÷ 10,000 = $ 1.00 Mode II 250,000 × 30% ÷ 20,000 = 3.75
Other Overhead Costs
Board Overhead × % ÷ Units = Cost/Unit
MaterialHandling Cost Pool
$14.82
Trang 19Product Cost from ABC
These are the new product costs when Aerotech uses
ABC.
Trang 20Distorted Product Costs
Both original and ABC target selling prices are
based on (Cost × 125%).
[$209.00 × 1.25] [$183.44 × 1.25]
The selling price of Mode I and II are decreased,
while the selling price for Mode III is increased.
Trang 21Can you identify any problems Aerotech is likely to
face as a result of this distortion?
Traditional costing understates the cost
of complex, low volume products.
Distorted Product Costs
Trang 22Cost of Measurement
Behavioral Effects
Trang 23COLLECTING ABC DATA
INTERVIEWS AND PAPER TRAILS - The information
for ABC systems initially comes from interviews with
employees in the support departments and a review of each
department’s records.
STORYBOARDING - A procedure used to develop a
detailed process flow chart, which visually represents activities
and the relationships among activities.
MULTIDISCIPLINARY ABC PROJECT TEAMS – To
gather information from all facets of an organization’s
operations, it is essential to involve personnel from a variety of
functional areas A typical ABC project team includes
ACCOUNTING, FINANCE, PRODUCTION, OPERATIONS,
ENGINEERS, MARKETING, etc
Trang 24Activity-Based Management
The use of ABC costing information
to help management make decisions
Trang 25Activity-Based Management
between overhead costs and activities so that
we can better allocate overhead costs.
on managing activities to reduce costs.
Trang 26Two-Dimensional ABC and
Activity-Based Management
Activity Triggers
Activity Triggers
Performance Measures
Activity Evaluation
Trang 27Elimination of Non-Value-Added
Costs
added activities
Non-value-Necessary Unnecessary
Trang 28Using ABM to Eliminate
Non-Value-Added Activities and Costs
Receive parts Produce goods
Produce goods
Inspect finished goods
Inspect finished goods
Rework defective products
Rework defective products
Trang 29Customer Profitability Analysis
Customer profitability analysis uses activitybased costing to determine the activities, costs, and profit associated
with serving particular customers.
Trang 30Customer Profitability Analysis
Orders small quantities
Orders frequently
Often changes orders
Required special packaging
Demand fast service
A costly customer