Modul ke: Akuntansi Biaya. Activity Accounting. Fakultas Ekonomi dan Bisnis. Suryadharma Sim, SE, M. Ak. Program Studi S1 Manajemen
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1 Modul ke: 14 Fakultas Ekonomi dan Bisnis Akuntansi Biaya Activity Accounting Suryadharma Sim, SE, M. Ak Program Studi S1 Manajemen
2 Activity-Based Costing An accounting method that identifies the activities that a firm performs, and then assigns indirect costs to products. An activity based costing (ABC) system recognizes the relationship between costs, activities and products, and through this relationship assigns indirect costs to products less arbitrarily than traditional methods. Some costs are difficult to assign through this method of cost accounting. Indirect costs, such as management and office staff salaries are sometimes difficult to assign to a particular product produced. For this reason, this method has found its niche in the manufacturing sector.
3 Activity-based costing (ABC) is a better, more accurate way of allocating overhead. Recall the steps to product costing: 1. Identify the cost object; 2. Identify the direct costs associated with the cost object; 3. Identify overhead costs; 4. Select the cost allocation base for assigning overhead costs to the cost object; 5. Develop the overhead rate per unit for allocating overhead to the cost object. Activity-based costing refines steps #3 and #4 by dividing large heterogeneous cost pools into multiple smaller, homogeneous cost pools. ABC then attempts to select, as the cost allocation base for each overhead cost pool, a cost driver that best captures the cause and effect relationship between the cost object and the incurrence of overhead costs. Often, the best cost driver is a nonfinancial variable.
4 How does Activity Based Costing differ from traditional cost accounting systems? Most traditional costing systems utilize a single basis, (e.g. direct labor) to distribute the indirect costs to all products and services. This method of allocating indirect costs commonly results in erroneous cost data. Often products which have high volume (and high labor cost) are over costed. Likewise, the cost of lower volume products are often understated, and many of the indirect costs of these products are overlooked. Rather than relying on a single basis to distribute costs, ABC assigns costs to activities and products based on how the costs (resources) are actually consumed by the process or product. By moving away from traditional cost allocation methods and using improved ABC methods of tracing and assignment, ABC provides managers with a clearer picture of cost of processes and the profitability of customers and products.
5 Definition of Activity Cost Driver A factor that influences or contributes to the expense of certain business operations. In activity based costing (ABC), an activity cost driver is something that drives the cost of a particular activity. A factory, for example, may have running machinery as an activity. The activity cost driver associated with running the machinery could be machine operating hours, which would drive the costs of labor, maintenance and power consumption of running the machinery activity. Activity-based costing is a type of costing that identifies activities within the business and estimates the resources required to fulfill each activity. An activity cost driver is a factor that effects the costs associated with an activity. Activity-based costing allows managers to determine the costs to perform an activity as well as the costs associated with not performing the activity For example, when a production line has to wait for a certain part to arrive from an external distributor or other manufacturing line, the manager can quickly determine the true cost of waiting for the part. Activity cost drivers attempt to provide a more comprehensive view of the actual costs of an activity, such as a manufacturing process.
6 Traditional costing Under a traditional costing system, forklift costs are pooled with all other overhead costs for the factory (electricity, property taxes, front office salaries, etc.), and then allocated to product based on direct labor hours (sewing operator time) for each product. Overhead rate under traditional costing: Total overhead costs Quantity of allocation base (direct labor hours) Overhead rate per direct labor hour $ 1,498, ,000 $ of which the following is due to forklift costs: Forklift overhead Quantity of allocation base (direct labor hours) Overhead rate for forklift costs per direct labor hour $ 98, ,000 $
7 Forklift overhead applied to product using traditional costing: Overhead rate Quantity of allocation base (direct labor hours) Forklift costs allocated Units produced Approximate cost per unit Jeans $ x 70,000 $ 62, ,000 $0.15 Slacks $ x 40,000 $ 35, ,000 $0.18 Note that all forklift overhead is allocated: $62,363 + $35,636 = $97,999 (the difference due to rounding of the overhead rate). If the casual slacks product manager asks why her product incurs more forklift costs on a per-unit basis than jeans, even though casual slacks use a lighter-weight fabric, the answer is that her product uses more direct labor per unit, which perhaps is not a very satisfying explanation from her perspective.
8 Activity-based costing An ABC system might first allocate forklift costs into two cost pools: one for the Receiving Department and one for the Shipping Department. Then costs from each of these two departments would be allocated to the two product lines. ABC first-stage allocation The first-stage allocation might use an estimate of the amount of time the forklifts spend in each department. A one-time study indicates that forklifts spend approximately 70% of their time in the Shipping Department and 30% of their time in the Receiving Department. An additional benefit of ABC is that if this information were collected periodically, the managers of these two departments might be more willing to share the forklifts with each other, since the reported costs of each department would then depend on the time the forklifts spend in that department. In any case, the 70/30 allocation results in the following first-stage allocation: 30% of $98,000 = $29,400 is allocated to the Receiving Department 70% of $98,000 = $68,600 is allocated to the Shipping Department
9 ABC second-stage allocation Total costs Quantity of allocation base Overhead rate Receiving $29,400 2,390 rolls $12.30 per roll Shipping $68,600 72,500 cartons $0.946 per carton Allocation to Jeans Overhead rate Quantity of allocation base $12.30 per roll x 1,750 rolls $21,525 $0.946 per carton x 52,500 cartons $49,665 Allocation to Slacks Overhead rate Quantity of allocation base $12.30 per roll x 640 rolls $7,872 $0.946 per carton x 20,000 cartons $18,920
10 Total forklift costs allocated to each product: Jeans Slacks Total From Receiving $21,525 $ 7,872 $29,397 From Shipping 49,665 18,920 68,585 Total $71,190 $26,792 $97,982 Units Produced 420, ,000 Approximate Cost per unit $0.17 $0.13 The $18 difference between total costs allocated of $97,982 and the original costs of $98,000 is due to rounding. The first-stage allocation allows the second-stage to allocate forklift costs to product using rolls of fabric as the allocation base in Receiving, and cartons of pants as the allocation base in Shipping. Since there are no rolls of fabric in the shipping department, and no cartons in the Receiving Department, without the first stage allocation, there would be no obvious choice of an allocation base that would capture the cause-and-effect relationship between the costs of operating the forklifts, and the utilization of forklift resources by each product in the two departments.
11 Conclusion The traditional costing method allocates more forklift costs to slacks than to jeans on a per-unit basis because casual slacks require more sewing effort. ABC allocates more forklift costs to jeans than to casual slacks, on a per-unit basis, which is intuitive because denim is a heavier-weight fabric than cotton twill. Cost Hierarchy: In ABC, cost pools are often established for each level in a hierarchy of costs. For manufacturing firms, the following cost hierarchy is commonly identified:
12 ABC in the Service Sector: ABC is as important to companies in the merchandising and service sectors as to manufacturing companies. In fact, although the origination of ABC is generally ascribed to manufacturing companies in the 1980s, by then hospitals were already allocating overhead costs to departments and then to patient services using methods similar to ABC. Hospitals were required to implement relatively sophisticated allocation processes in order to comply with Medicare reimbursement rules. After its inception in the 1960s, Medicare established detailed rules regarding how overhead costs should be grouped into cost pools, and the choice of appropriate allocation bases for allocating overhead costs to departments and then to patients. Within these rules, hospitals were able to maximize revenues by shifting costs from areas such as pediatrics, labor and delivery, and maternity (which have low rates of Medicare utilization) to the intensive care unit, the critical care unit, and surgery (which have higher rates of Medicare utilization). Other nonmanufacturing industries that have benefited from ABC include financial services firms and retailers.
13 Activity-Based Management A procedure that originated in the 1980s for analyzing the processes of a business to identify strengths and weaknesses. Specifically, activity-based management seeks out areas where a business is losing money so that those activities can be eliminated or improved to increase profitability. ABM analyzes the costs of employees, equipment, facilities, distribution, overhead and other factors in a business to determine and allocate activity costs. Activity-based management can be applied to different types of companies, including manufacturers, service providers, non-profits, schools and government agencies, and ABM can provide cost information about any area of operations in a business. In addition to improving profitability, the results of an ABM analysis can help a company produce more accurate budgets and financial forecasts.
14 Approach to management that aims to maximize the value adding activities while minimizing or eliminating non-value adding activities. The overall objective of ABM is to improve efficiencies and effectiveness of an organization in securing its markets. It draws on activity based-costing (ABC) as its major source of information and focuses on (1) reducing costs, (2) creating performance measures, (3) improving cashflow and quality and, (4) producing enhanced value products.
15 Activity-based management (ABM) is a method of identifying and evaluating activities that a business performs using activity-based costing to carry out a value chain analysis or a re-engineering initiative to improve strategic and operational decisions in an organization. Activity-based costing establishes relationships between overhead costs and activities so that overhead costs can be more precisely allocated to products, services, or customer segments. Activity-based management focuses on managing activities to reduce costs and improve customer value.
16 Kaplan and Cooper (in Kaplan, R. S., & Cooper, R. (1998). Cost and effect: Using integrated cost systems to drive profitability and performance. Boston: Harvard Business School Press.) divide ABM into operational and strategic: Operational ABM is about doing things right, using ABC information to improve efficiency. Those activities which add value to the product can be identified and improved. Activities that don t add value are the ones that need to be reduced to cut costs without reducing product value. Strategic ABM is about doing the right things, using ABC information to decide which products to develop and which activities to use. This can also be used for customer profitability analysis, identifying which customers are the most profitable and focusing on them more.
17 A risk with ABM is that some activities have an implicit value, not necessarily reflected in a financial value added to any product. For instance a particularly pleasant workplace can help attract and retain the best staff, but may not be identified as adding value in operational ABM. A customer that represents a loss based on committed activities, but that opens up leads in a new market, may be identified as a low value customer by a strategic ABM process. Managers should interpret these values and use ABM as a common, yet neutral, ground this provides the basis for negotiation (Kennedy, T., & Bull, R. (2000). The great debate. Management Accounting, 78). ABM can give middle managers an understanding of costs to other teams to help them make decisions that benefit the whole organisation, not just their activities' bottom line.
18 Terima Kasih Suryadharma Sim, SE, M. Ak
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