# Activity-Based Costing Systems

Size: px
Start display at page:

Transcription

1 4 Activity-Based Costing Systems

2 4-2 Learning Objective 1

3 4-3 Traditional Costing Systems Traditional cost systems were created when manufacturing processes were labor intensive. A single company-wide overhead rate based on direct labor hours may be used to allocate overhead to products in these labor intensive processes.

4 4-4 Traditional Costing Systems In this example, overhead will be allocated to jobs using direct labor hours. If total overhead is \$120, how much will be allocated to each job?

5 4-5 Traditional Costing Systems Overhead Rate = \$120 8 direct labor hours Overhead Rate = \$15 per direct labor hour Job 1 = 2 hours \$15 per hour = \$30 Job 2 = 6 hours \$15 per hour = \$90

6 4-6 Traditional Costing Systems The company introduces automated machinery. Total overhead rises from \$120 to \$420, while the labor time needed for Job 2 falls from 6 hours to 1 hour. Now allocate the \$420 overhead to the two jobs.

7 4-7 Traditional Costing Systems Overhead Rate = \$420 3 direct labor hours Overhead Rate = \$140 per direct labor hour Job 1 = 2 hours \$140 per hour = \$280 Job 2 = 1 hour \$140 per hour = \$140

8 4-8 Traditional Costing Systems Is this a reasonable costing method? Automation benefited only Job 2, but most of the additional overhead cost was allocated to Job 1. Clearly, we need to look for another cost driver.

9 4-9 Learning Objective 2

10 4-10 Activity-Based Costing (ABC) A costing method that identifies the activities performed within the organization as it delivers its goods and services. Products Require Activities Activities Consume Resources People Manage Activities

11 4-11 Activity-Based Costing (ABC) A costing method that assigns costs to products, based on the number of activities the organization used in producing them. Lot size Direct labor hours Process setups Design time Machine hours Customer contact

12 4-12 Activity-Based Costing (ABC) Both manufacturing and nonmanufacturing costs may be assigned to products. A ABC is a good supplement to our traditional cost system. B C Allocation bases often differ from traditional costing systems. Used in internal decision making as well as in inventory valuation for external reporting.

14 4-14 ABC Compared with Traditional Costing Traditional Costing Directly traced or allocated Resource Costs Activity-Based Costing Resource Costs Directly traced or allocated Predetermined overhead rate Cost Pools: Plants or Departments Cost Objects Cost Pools: Activities or Activity Centers Cost Objects Cost driver rates for each activity

15 4-15 Activity-Based Costing (ABC) An Activity Cost Pool is a common way to collect costs that are related to a specific activity in the ABC system. Activity Costs \$ \$ \$ \$ \$ \$

16 4-16 Four Steps in the ABC Process Identify and classify the activities related to the company s products or services. Estimate the cost of each activity identified in. Calculate a cost-driver rate for each activity. Assign activity costs to products using the cost-driver rate.

17 4-17 Learning Objective 3

18 4-18 Identify and Classify Activities UNIT-LEVEL ACTIVITIES Resources acquired and activities performed for individual units of product. BATCH-LEVEL ACTIVITIES Resources acquired and activities performed for a group or batch of similar products or services. PRODUCT-LEVEL ACTIVITIES Resources acquired and activities performed to produce and sell a specific product or service. CUSTOMER-LEVEL ACTIVITIES Resources acquired and activities performed to serve specific customers. FACILITY-LEVEL ACTIVITIES Resources acquired and activities performed to provide general capacity to produce goods or services.

19 4-19 Identify and Classify Activities TOP DOWN APPROACH ABC teams of people from top levels of management generate the activity dictionary. RECYCLING APPROACH Reuses documentation of processes used for other purposes. INTERVIEW OR PARTICIPATIVE APPROACH ABC teams include or interview operating employees.

20 4-20 Learning Objective 4

21 4-21 Estimate the Cost of Activities The ABC teams should gather data on the costs of all the activities identified in Step 1. Examine accounting records for recorded cost information. Ask employees to indicate how much time they work on various activities.

22 4-22 Calculate Cost-Driver Rates for Activities Two pieces of information are required to compute the cost-driver rate: Activity Cost Activity Volume = Cost-Driver Rate Activity Cost Activity Volume May Company has 4 employees in its Quality Control Department. Salaries and costs for the department total \$360,000 per year. May produces 500,000 units of product a year. What is the cost-driver rate per unit? \$360, ,000 units = \$.72 per unit

23 4-23 Calculate Cost-Driver Rates for Activities MAY has a customer service center where customers can call to ask questions. Customers pay a fixed fee for each call they make to the service center. It costs MAY \$1,260,000 a year to operate the center. The center receives 120,000 calls per year. The center handles 1,000,000 minutes of calls. What is the appropriate cost driver: total minutes for all calls or number of calls? What is the cost-driver rate?

24 4-24 Calculate Cost-Driver Rates for Activities Since customers are charged per call, the proper activity in this case is the number of calls handled by the center. The cost-driver rate would be: \$1,260, ,000 units = \$10.50 per call

25 4-25 Calculate Cost-Driver Rates for Activities Cause and effect relationship between activity and costs Based on resource s practical capacity to support activities Appropriate cost-driver base Measurable Predict or explain an activity s use of resources

26 4-26 Practical Capacity Note When estimating the cost of an activity, only the costs associated with the product should be used (practical capacity). The cost of unused capacity should not be applied to products. EXAMPLE Suppose we rent a 1,000 square foot warehouse for \$1,000 per month. Only 800 sq. ft. are used to store Product A. The rest of the warehouse is unused. How much rent cost should be allocated to Product A?

27 4-27 Practical Capacity Note 80%, or \$800 should be assigned to Product A 20%, or \$200 should be assigned to unused capacity

28 4-28 Learning Objective 5

29 4-29 Assign Activity Costs to Products 1. Identify all the activities related to a given product or service. 2. Determine how many units of each activity are used per unit of product. 3. Assign costs to products using the costdriver rates for each activity.

30 4-30 Assign Activity Costs to Products Example: Yazz, Inc. produces 130,000 units of Product A and 400,000 units for Product B. Using the following cost information, how much overhead should be allocated to Product A? Activity Cost-Driver Base Cost-Driver Rate Resources Used by Product A Factory Floor Space Square Footage \$ ,000 Sq. Ft. Electricity Kilowatts \$ ,000 KW Water Gallons \$ ,000 Gal. Quality Control Units Inspected \$ ,000 Units Packaging - Inner Ounces of product \$ ,000 Oz. Packaging - Outer Boxes \$ ,000 Boxes

31 4-31 Assign Activity Costs to Products Activity Cost-Driver Base Cost-Driver Rate Resources Used by Product A Cost Assigned Factory floor space Square footage \$ ,000 sq. ft. \$ 1,000,000 Electricity Kilowatts \$ ,000 kw. \$ 750 Water Gallons \$ ,000 gal. \$ 12,800 Quality control Units \$ ,000 units \$ 114,750 inspected Inner packaging Ounces of \$ ,000 oz. \$ 6,750 product Outer packaging Boxes \$ ,000 boxes \$ 168,750 Total Cost Assigned to Product A \$ 1,303,800

32 4-32 Activity-Based Costing Example Let s look at an example from the Bilson Company.

33 4-33 Activity-Based Costing Example Bilson, Inc. manufactures and sells 5,000 units of Product A (deluxe model), and 25,000 units of Product B (standard model) each year. Product A requires 3.0 direct labor hours (DLH) and Product B requires 2.5 DLH to produce. Employing a traditional costing system, Bilson assigns overhead cost to products using direct labor hours. The predetermined overhead rate is: Mfg. overhead cost Direct labor hours = \$1,550,000 77,500 = \$20/DLH

34 4-34 Activity-Based Costing Example Bilson s unit product costs using traditional costing are: Product A Product B Direct material \$ \$ Direct labor Manufacturing overhead 3.0 DLH \$20/DLH DLH \$20/DLH Total unit product cost \$ \$ Bilson marks its products up by 50 percent and allocates its \$500,000 customer service costs based on revenue.

35 4-35 Activity-Based Costing Example \$ Traditional Costing Product A Product B Volume 5,000 25,000 Sales Price \$ \$ Sales Revenue \$ 975,000 \$ 3,900,000 Direct Material \$ ,000 \$ ,000 Direct Labor , ,000 Overhead , ,250,000 Gross Margin \$ \$ 325,000 \$ \$ 1,300,000 Customer Service Costs 100, ,000 Product operating income \$ 225,000 \$ 900,000 \$975,000 (\$975,000 +\$3,900,000) \$500,000

36 4-36 Activity-Based Costing Example Sales of Product A have increased steadily since introduction, but company income has declined. Management at Bilson is unhappy with the traditional costing system and they have decided to try activity-based costing. In addition, management has observed that the cost of direct labor is relatively stable. Since labor does not behave like a unit-level cost, labor will be combined with overhead and the total conversion cost will be assigned using ABC.

37 4-37 Activity-Based Costing Example The total conversion cost is: Traditional overhead \$1,550,000 Labor (77,500 \$10) 775,000 Total \$2,325,000 In addition, management has observed that the cost of direct labor is relatively stable. Since labor does not behave like a unit-level cost, labor will be combined with overhead and the total conversion cost will be assigned using ABC.

38 4-38 Activity-Based Costing Example Management has identified the following five activities and costs in the production of its two products: Activity Cost Machine setups \$ 800,000 Quality inspections 450,000 Production orders 225,000 Machine-hours worked 650,000 Material receipts 200,000 Total \$ 2,325,000 Total conversion cost

39 4-39 Activity-Based Costing Example The following transaction data has been complied by management of Bilson: Activity Total Product A Product B Machine setups 5,000 3,000 2,000 Quality inspections 9,000 6,000 3,000 Production orders Machine-hours worked 50,000 15,000 35,000 Material receipts

40 4-40 Activity-Based Costing Example These data can be used to develop predetermined cost-driver rates for each of the five activities: Activity Costs Total Transactions Rate per Transaction Machine setups \$ 800,000 5,000 \$ per setup Quality inspections 450,000 9, per inspection Production orders 225, per order Machine-hours worked 650,000 50, per hour Material receipts 200, per receipt Total \$ 2,325,000 \$ 800,000 5,000 Machine setups = \$ per setup

41 4-41 Activity-Based Costing Example The activity-based overhead rates we just calculated can be used to assign conversion costs to Bilson s two products. Product A Activity ABC Rate Transactions Amount Machine setups \$ ,000 \$ 480,000 Quality inspections , ,000 Production orders ,000 Machine-hours worked , ,000 Material receipts ,500 Total overhead assigned \$ 1,087,500 Number of units produced 5,000 Conversion per unit \$217.50

42 4-42 Activity-Based Costing Example The activity-based overhead rates we just calculated can be used to assign conversion costs to Bilson s two products. Product B Activity ABC Rate Transactions Amount Machine setups \$ ,000 \$ 320,000 Quality inspections , ,000 Production orders ,000 Machine-hours worked , ,000 Material receipts ,500 Total overhead assigned \$ 1,237,500 Number of units produced 25,000 Conversion per unit \$ 49.50

43 4-43 Activity-Based Costing Example The activity-based overhead rates we just calculated can be used to assign conversion costs to Bilson s two products. Product B Activity ABC Rate Transactions Amount Machine setups \$ ,000 \$ 320,000 Quality inspections , ,000 Production orders ,000 Machine-hours worked , ,000 Material receipts ,500 Total overhead assigned \$ 1,237,500 Total Number conversion of units assigned produced to Product A \$ 1,087,500 25,000 Total Overhead conversion per assigned unit to Product B 1,237,500 \$ Total overhead \$ 2,325,000

44 4-44 Activity-Based Costing Example Let s compute the product cost for A and B using our ABC overhead rates: Activity Based Costing Product A Product B Direct materials \$ \$ Conversion Total unit product cost \$ \$ These amounts did not change as a result of using ABC.

45 4-45 Activity-Based Costing Example Now compare the unit product costs using the traditional costing system and our ABC system. Costing Method Product A Product B Activity-based costing \$ \$ Traditional costing Remember, we used one overhead rate based on direct labor hours.

46 4-46 Activity-Based Costing Example Now compare the unit product costs using the traditional costing system and our ABC system. Costing Method Product A Product B Activity-based costing \$ \$ Traditional costing Adopting activity-based costing usually results in a shift of batch-level and product-level overhead costs from high-volume standard products to low-volume, more complex products.

47 4-47 Activity-Based Costing Example Now compare the unit product costs using the traditional costing system and our ABC system. Costing Method Product A Product B Activity-based costing \$ \$ Traditional costing Can you see how different allocation methods might lead to making different management decisions?

48 4-48 Activity-Based Costing Example Based on these results Bilson also decides to use ABC to assign its \$500,000 customer service costs. The applicable activity is number of customer consultations. Customers buying Product A, the deluxe model, require more consultations than those buying Product B, the standard model. Cost per consultation = \$500, ,000 consultations = \$4.00

49 4-49 Activity-Based Costing Example No change in sales price ABC Costing Product A Product B Volume 5,000 25,000 Sales Price \$ \$ Sales Revenue \$ 975,000 \$ 3,900,000 Direct Material \$ ,000 \$ ,000 Conversion ,087, ,237,500 Gross Margin \$ (62.50) \$ (312,500) \$ \$ 1,937,500 Customer Service Costs 200, ,000 Product operating income \$ (512,500) \$ 1,637,500 Let s compare product income using traditional and ABC costing.

50 4-50 Product A Product B Volume 5,000 25,000 Sales Price \$ \$ Sales Revenue \$ 975,000 \$ 3,900,000 Direct Material \$ ,000 \$ ,000 Conversion ,087, ,237,500 Gross Margin \$ (62.50) \$ (312,500) \$ \$ 1,937,500 Customer Service Costs 200, ,000 Product operating income \$ (512,500) \$ 1,637,500 ABC Costing Product A Product B Volume 5,000 25,000 Sales Price \$ \$ Sales Revenue \$ 975,000 \$ 3,900,000 Direct Material \$ ,000 \$ ,000 Direct Labor , ,000 Overhead , ,250,000 Gross Margin \$ \$ 325,000 \$ \$ 1,300,000 Customer Service Costs 100, ,000 Product operating income \$ 225,000 \$ 900,000 Traditional Costing

51 4-51 Learning Objective 6

52 4-52 Product Profitability Should Bilson drop Product A? Should Bilson increase the price of Product A? Should Bilson reduce the price of Product B? Now that we have measured product costs accurately, we see how profitable each product really is.

53 4-53 Product Profitability The price of Product A, the deluxe model, should probably be increased. Customers who buy deluxe models may buy based on features instead of price. The price of Product B, the standard model, may be too high. Customers who buy standard models are price sensitive. Decreasing the price would increase volume, possibly resulting in more income.

54 4-54 Customer Profitability What are the costs and benefits of serving specific customers? Buy/sell orders Service calls Order changes Activity-based analysis can be used to track the costs of serving customers and those customers contribution to company profits.

55 4-55 Estimating Costs of New Products Apply ABC analysis of present product lines to proposed new products. This is valid as long as the activities involved with the new products are similar to those for the present products.

56 4-56 Learning Objective 7

57 4-57 ABC in Service and Merchandising Companies The process is exactly the same as for manufacturing! Identify and classify the activities related to the company s products or services. Estimate the cost of each activity identified in. Calculate a cost-driver rate for each activity. Assign activity costs to products using the relevant cost-driver rates.

58 4-58 ABC Benefits and Limitations More accurate and informative product costs lead to better pricing decisions. The activities driving costs are more accurately measured. Managers gain easier access to the relevant costs. An ABC system is very expensive to develop and implement, and very time-consuming to maintain.

59 4-59 When Should a Company Use ABC? Indirect costs are significant in proportion to direct costs. Goods are complex, requiring many inputs and processes. Complex, low-volume products are profitable while standard, high-volume products are not. Different departments believe costs are assigned inaccurately. The company loses bids it thought were low, and wins bids it thought were high. Operations have changed significantly, but the costing system has not changed. Introduction of new models result in higher sales, apparent profits per unit, but an overall income decline.

60 4-60 End of Chapter 4

### Overcosting and Undercosting (Example 1 at the end of these notes)

Chapter 5 Activity-Based Costing Overcosting and Undercosting (Example 1 at the end of these notes) Distortions from inaccurate costing Activities/Resources/Cost Drivers Steps in ABC Identify resources

### Chapter 4 Activity-based Costing Systems

Chapter 4 Activity-based Costing Systems ABC costing may use five different cost categories that reflect different levels of production activities and that sum to total production costs. Unit-level cost:

### CHAPTER 7 Accounting 1B. Activity-Based Costing(ABC): A tool to Aid Decision Making

CHAPTER 7 Accounting 1B Activity-Based Costing(ABC): A tool to Aid Decision Making Global Business Situation Using technology and productivity More emphasis on cost measurement and control Increasingly

### Activity Based Costing: A Tool to Aid Decision Making. M. En C. Eduardo Bustos Farías

Activity Based Costing: A Tool to Aid Decision Making M. En C. Eduardo Bustos Farías 1 Ejemplo 1. Portland Power Company 2 Activity Based Costing (ABC) ABC is designed to provide managers with cost information

### MBP1133 Managerial Accounting Prepared by Dr Khairul Anuar

1 MBP1133 Managerial Accounting Prepared by Dr Khairul Anuar L8 Activity-Based Costing: A Tool to Aid Decision Making www.notes638.wordpress.com 2 Activity Based Costing (ABC) ABC is designed to provide

### Activity Based Costing

Activity Based Costing 1 Existing Single Indirect- Cost Pool System Cole Corporation manufactures two types of cell phones a standard type (S) and one complex type with additional functions (C). To cost

### Activity Based Costing

Activity Based Costing Existing Single Indirect- Cost Pool System Cole Corporation manufactures two types of cell phones a standard type (S) and one complex type with additional functions (C). To cost

### ACCTG 221 / ABC Costing

ACCTG 221 / ABC Costing ACTIVITY BASED COSTING SYSTEMS First identifies activities in an organization and then assigns the cost of each activity to products and services based on actual consumption The

Traditional Costing Systems Product Costs Direct labor Direct materials Factory Overhead Direct labor and direct materials are easy to trace to products. The problem comes with factory overhead. Traditional

### Designing cost accounting systems. by David Derichs Lecture 1 Helsinki, 02 January 2018

Designing cost accounting systems by David Derichs Lecture 1 Helsinki, 02 January 2018 Cost Accounting History Approaches to cost accounting I II i ii iii Traditional ABC TDABC I. The history of cost accounting

### Acct 1B Week 8, Chap 7

Acct 1B Week 8, Chap 7 Activity Based Costing (ABC) Instructor: Michael Booth Cabrillo College Activity Based Costing: A Tool to Aid Decision Making Global Business Situation Using technology and productivity

### 3. Which is not an inventory account manufacturing companies have: a) Raw Materials b) Manufacturing Overhead c) Work in Process d) Finished Goods

Chapter 1 Question Review 1. Which of the following is not a characteristic of managerial accounting: a) Emphasizes decisions affecting the future b) Mandatory for external reports c) Need not follow GAAP

### Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren) Chapter 5 Activity-Based Costing and Activity-Based Management

Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren) Chapter 5 Activity-Based Costing and Activity-Based Management 5.1 Objective 5.1 1) Which of the following statements is true of a

### FINANCIAL STATEMENTS

FINANCIAL STATEMENTS Key Topics to Know Cost of good sold statement is prepared from the finished goods inventory account. Cost of goods sold statement has the same format as in financial accounting. Cost

### Willow Company produces lawn mowers. One of its plants produces two versions of mowers: a basic model and a deluxe model. The deluxe model has a

Illustration Problem 2: Production-Based Costing vs. Activity Based Costing Willow Company produces lawn mowers. One of its plants produces two versions of mowers: a basic model and a deluxe model. The

### Chapter 5: Activity-Based Costing

Chapter 5: -Based ing Management System: A cost-management system (CMS) is a collection of tools and techniques that identifies how management s decisions affect costs. Traditional (Peanut Butter) ing:

### AGENDA: JOB-ORDER COSTING

TM 3-1 AGENDA: JOB-ORDER COSTING A. The documents in a job-order costing system. 1. Materials requisition form. 2. Direct labor time ticket. 3. Job cost sheet. B. Applying overhead using a predetermined

### MANAGERIAL ACCOUNTING SPRING 2014 MIDTERM EXAM. PROBLEM 1 Kennedy Company reports the following costs and expenses in May.

PROBLEM 1 Kennedy Company reports the following costs and expenses in May. Factory utilities \$ 13,500 Direct labor \$79,100 Depreciation on factory Sales salaries 48,400 equipment 12,650 Property taxes

### Activity Based Costing: A Decision Making Tool. with Dr. Joseph Ugras December 2017

Activity Based Costing: A Decision Making Tool with Dr. Joseph Ugras December 2017 1 7-2 Learning Objectives Know the Need for Cost and Profitability Understand how traditional and activity-based costing

### 1. Amounts (in thousands) Molding Component Assembly Total

5-32 (30 min.) Plantwide versus department overhead cost rates. 1. Amounts (in thousands) Molding Component Assembly Total Manufacturing department overhead \$21,000 \$16,200 \$22,600 \$59,800 Service departments:

### 5-54 Volume-based Costing Versus ABC

5-54 Volume-based Costing Versus ABC 1. Product A Product B Product C Materials \$50.00 \$114.40 \$65.00 Labor 20.00 12.00 10.00 Overhead* 116.00 69.60 58.00 Total Cost \$186.00 \$ 196.00 \$133.00 *overhead

### Chapter 02 - Cost Concepts and Cost Allocation

Chapter 02 - Cost Concepts and Cost Allocation Student: 1. Product costs for a manufacturing company consist of direct materials, direct labor, and overhead. 2. Period cost and product cost are synonymous

### Chapter 02 - Cost Concepts and Cost Allocation

Chapter 02 - Cost Concepts and Cost Allocation Student: 1. Product costs for a manufacturing company consist of direct materials, direct labor, and overhead. 2. Period cost and product cost are synonymous

### Chapter 3 Activity-Based Costing

Chapter 3 -Based Costing Solutions to Questions 3-1 The most common methods of assigning overhead costs to products are plantwide overhead rates, departmental overhead rates, and activity-based costing.

### Match the activity pool with an appropriate activity measure. Your answers: Customer orders. Product design c-:i ~ Number of product designs

Match the activity pool with an appropriate activity measure. ~ Your answer is correct Your answers: Customer orders IHI ~ Number of customer orders Product design c-:i ~ Number of product designs l J

### 6. Refer to the Michael's Manufacturing, Inc. information above. Raw materials used for July is:

Review II NUMBER 1. Which of the following is a characteristic of managerial accounting? a. It is used primarily by external users. b. It often lacks flexibility. c. It is often future-oriented. d. The

### Activity-Based Costing. Managerial Accounting, Fourth Edition

Study Objectives Study CHAPTER Objectives 4 Activity-Based Costing Managerial Accounting, Fourth Edition Study Objectives 1. Recognize the difference between traditional costing and activity based costing.

### Chapter 2 An Introduction to Cost Terms and Purposes

Chapter 2 An Introduction to Cost Terms and Purposes Copyright 2003 Pearson Education Canada Inc. Slide 2-15 Costs and Cost Objects Cost a resource sacrificed or foregone to achieve a specific objective

### Cost Accounting. Multiple Choice Questions:

Multiple Choice Questions: 1- The Value Chain a- Involves external companies as well as internal activities. b- Is the sequence of business functions in which customer usefulness is added to products or

### rate is used to apply overhead costs to products. Our purpose in this section is to provide a detailed example of cost flows in an ABC system.

Appendix 6A Cost Flows in an -Based Costing System 6A-1 Cost Flows in an -Based Costing System In Chapter 4, we discussed the flow of costs in a job-order costing system. The flow of costs through raw

### ACCT323, Cost Analysis & Control H Guy Williams, 2005

Costing is a very interesting area because there are many different ways to come up with cost for something. But these principles are generally applicable across the board. Because at any point once you

### Part 1 Study Unit 5. Cost Accumulations Systems Jim Clemons, CMA Ronald Schmidt, CMA, CFM

Part 1 Study Unit 5 Cost Accumulations Systems Jim Clemons, CMA Ronald Schmidt, CMA, CFM 1 Overview Cost accounting systems record manufacturing activities using a perpetual inventory system, which continuously

### Activity-Based Costing and Analysis

A Look Back Chapters 2 and 3 described costing systems used by companies to accumulate product costing information for the reporting of inventories and cost of goods sold. 4Chapter Learning Objectives

### 1. Which one of the following is assigned to goods that were either purchased or manufactured for resales?

1. Which one of the following is assigned to goods that were either purchased or manufactured for resales? a. Relevant cost b. Period cost c. Product cost d. Opportunity cost 2. Which one of the following

### 70% of total manufacturing costs for the period

Midterm Review Class #1.1- COGM; Income Statement, Cost Behaviour On January 30, 2013, the manufacturing facility of Trucks R Us was severely damaged by a fire. As a result, the company s direct materials,

### TUTORIAL -ABC. Ir. Haery Sihombing/IP Pensyarah Pelawat Fakulti Kejuruteraan Pembuatan Universiti Teknologi Malaysia Melaka

TUTORIAL -ABC Ir. Haery Sihombing/IP Pensyarah Pelawat Fakulti Kejuruteraan Pembuatan Universiti Teknologi Malaysia Melaka TOTAL COST for a COST OBJECT EXAMPLE: 1 Direct Cost (Labor Material) Overhead

### COST C O S T COST 1/12/2011

Chapter 3 COST CONCEPT AND DESIGN ECONOMICS C O S T Ir. Haery Sihombing/IP Pensyarah Fakulti Kejuruteraan Pembuatan Universiti Teknologi Malaysia Melaka COST Cost is not a simple concept. It is important

### An Introduction to Cost Terms and Purposes

CHAPTER 2 An Introduction to Cost Terms and Purposes Overview This chapter introduces the basic terminology of cost accounting. Communication among managers and management accountants is greatly facilitated

### Activity-Based Costing: A Tool to Aid Decision Making

Activity-Based Costing: A Tool to Aid Decision Making Chapter 8 McGraw-Hil/Irwin Activity Based Costing (ABC) ABC is designed to provide managers with cost information for strategic and other decisions

### CHAPTER 5 ACTIVITY-BASED COSTING AND MANAGEMENT

CHAPTER 5 ACTIVITY-BASED COSTING AND MANAGEMENT SHORT-ANSWER QUESTIONS 5-1 Cost smoothing (or traditional costing, broad averaging, peanut-butter costing ) describes a costing approach that uses one average

### Managerial Accounting and Cost Concepts

Managerial Accounting and Cost Concepts Chapter 2 PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright

Job Costing Systems Types of Product-Costing Systems Process Costing Job-Order Costing Used for production of large, unique, high-cost items. Built to order rather than mass produced. Many costs can be

### Activity- Based Costing

Activity- Based Costing McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. The Two-Stage Progress Using Direct Labor Hours Power Costs Indirect Labor Factory Supplies

### 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I

SOLUTIONS TO EERCISES EERCISE 2-1 (15 minutes) 1. F; I 2. V ; D 3. V ; D 4. F; I 5. F; I 6. F; I 7. V ; D 8. F; I 9. F; I 10. V ; D 11. F; I 12. F; I 13. F; I 14. F; I EERCISE 2-2 (15 minutes) 1. Product

### ACCTF 533, Section 1: Module 1: Costs and Cost Allocation: Lecture 2: Cost Drivers and Cost Allocation

ACCTF 533, Section 1: Module 1: Costs and Cost Allocation: Lecture 2: Cost Drivers and Cost Allocation Cost Drivers and Cost Allocation Cost Drivers and Cost Allocation: Now that we have a basic understanding

### Relevant Costs for Decision Making

Relevant Costs for Decision Making Chapter Thirteen 13-2 Learning Objective 1 Identify relevant and irrelevant costs and benefits in a decision. 13-3 Cost Concepts for Decision Making A relevant cost is

### Can Innovation of Time Driven ABC System Replace Conventional ABC System?

Can Innovation of Time Driven ABC System Replace Conventional ABC System? Tan Ming Kuang Accounting Department, Maranatha Christian University Abstract: The purpose of this paper is to analyze the differences

### CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS

CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS DISCUSSION QUESTIONS 1. An accounting information system is a system consisting of interrelated manual and computer parts, using processes such as collecting, recording,

### An accounting perspective: Business insight

An accounting perspective: Business insight Engineers for automobile companies in the United States believe that Japanese manufacturers can build cars for considerably less than their US counterparts.

### Chapter 3 Systems Design: Job-Order Costing

Chapter 3 Systems Design: Job-Order Costing Solutions to Questions 3-1 By definition, manufacturing overhead consists of costs that cannot be practically traced to products or jobs. Therefore, if these

### Part 1 Study Unit 6. Cost Allocation Techniques Jim Clemons, CMA

Part 1 Study Unit 6 Cost Allocation Techniques Jim Clemons, CMA Absorption versus Variable Costing You need to be able to answer the following: Under absorption costing, which cost are considered product

### Cost Systems. Terms Cost Accounting Process Cost System Job Order Cost System

Terms Cost Accounting Process Cost System Job Order Cost System Cost Systems Job-Order Costing Used for custom or unique items Each job is accounted for separately Measures cost based on completed job

### Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes. Objective 2.1

Cost Accounting, 15e (Horngren/Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes Objective 2.1 1) An actual cost is. A) is the cost incurred B) is a predicted or forecasted cost C) is anything

### activity-based EXAMPLE 1 See Table 1 opposite.

01 technical activity-based RELEVANT to ACCA QUAlification paper F5 Conventional costing distinguishes between variable and fixed costs. Typically, it is assumed that variable costs vary with the number

### Full file at

Full file at https://fratstock.eu Chapter 2 Job-Order Costing and Modern Manufacturing Practices QUESTIONS 1. Manufacturers need product costing systems in order to measure and record the cost of manufactured

### Activity Based Costing Learning Objectives

Activity Based Costing 5 Learning Objectives After studying this chapter, you should be able to Discuss the limitations of using only unit-based drivers to assign costs. Provide a detailed description

### Managerial Accounting Prof. Dr. Vardaraj Bapat School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof Dr Vardaraj Bapat School of Management Indian Institute of Technology, Bombay Module - 11 Lecture - 25 Activity Based Costing and Management Today, we will continue our discussion

### Lecture 2: Flow of resource costs

Lecture 2: Flow of resource costs Cost Object: anything for which a separate measurement of costs is required, e.g. products, services, customers, projects, processes, segments of the value chain, divisions/departments,

### Measurements That Count (and Some That Don t) Hank IT DEPENDS Barr CFPIM, CSCP, CLTD, CSCM, 6σBB, C.P.M., CLA/CLT Vancouver BC November 1, 2018

Measurements That Count (and Some That Don t) Hank IT DEPENDS Barr CFPIM, CSCP, CLTD, CSCM, 6σBB, C.P.M., CLA/CLT Vancouver BC November 1, 2018 Introduction The Goal Is To Make Money Managers Want To Manage

### Calculation Schema. Setting up the calculation schema in beas. Beas Tutorial. Boyum Solutions IT A/S

Calculation Schema Setting up the calculation schema in beas Boyum Solutions IT A/S Beas Tutorial TABLE OF CONTENTS 1. INTRODUCTION... 3 2. PROCESS... 3 2.1. Master Data Tab... 5 2.2. Overhead Costs Tab...

### COMPREHENSIVE EXAMINATION A

COMPREHENSIVE EXAMINATION A (Chapters 1-4) Approximate Problem Topic Points Minutes A - I Multiple Choice... 20 20 A - II Cost of Goods Manufactured and Sold... 20 15 A - III Job Order Cost Accounting...

### Sales salaries. Factory repairs. Advertising Office supplies used \$ \$

E19-4, Determine the total amount of various types of costs. Drew Company reports the following costs and expenses in May. Factory utilities \$11.500 \$69.100 Depreciation on factory equipment Depreciation

### Full file at

Chapter 2 Job Order Costing ANSWERS TO QUESTIONS 1. The difference between job order costing and process costing relates to the type of product or service the company provides, and whether that product

### ACCT* 2230 Practice Midterm

ACCT* 2230 Practice Midterm Short Answer Questions 1. (4 marks) During the month of May, Bennett Manufacturing Company purchases \$43,000 of raw materials. The manufacturing overhead totals \$27,000 and

### ACTIVITY BASED COSTING PERFORMANCE MEASUREMNENT ABC. Benchmarking

PERFORMANCE MEASUREMNENT Benchmarking Measuring and benchmarking supply chain performance is a vital first step in any reengineering programme. Understanding the differences between value adding time and

### ACTIVITY BASED COSTING

CHAPTER 5 ACTIVITY BASED COSTING LEARNING OUTCOMES r Discuss problem of traditional costing system. r Discuss usefulness of Activity Based Costing(ABC). r Discuss Cost Allocation under ABC. r Discuss Different

### Mona Loa Malaysian Manufacturing cost per bag... \$6.00 \$5.00 Add markup at 30% Selling price per bag... \$7.80 \$6.50

Case 8-24 1. a. The predetermined overhead rate would be computed as follows: Expected manufacturing overhead cost \$3,000,000 = Estimated direct labour-hours 50,000 DLHs =\$60 per DLH b. The unit product

### ACG 2071 Managerial Accounting Spring 2018 Exam #4 Sample Review Problems

Page 1 ACG 2071 Managerial Accounting Spring 2018 Exam #4 Sample Review Problems This is an independent effort. Do your own work! The ACE tutors and the SI may not assist you on this sample exam prior

### Managerial Accounting Prof. Dr. Varadraj Bapat School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Varadraj Bapat School of Management Indian Institute of Technology, Bombay Module - 9 Lecture - 20 Accounting for Costs Dear students, in our last session we have started

### Chapter 2--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Chapter 2--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Student: 1. Which of the following types of organizations is most likely to have a raw materials inventory account?

### DEFINITIONS AND CONCEPTS

DEFINITIONS AND CONCEPTS ** CONCEPTS AND DEFINITIONS IN THIS MODULE APPEAR IN VARIOUS CHAPTERS ** Key Terms and Concepts to Know Major Management Activities Planning - formulating long and short-term plans

### Institute of Certified Management Accountants of Sri Lanka Operational Level November 2018 Examination. Management Accounting (MA / OL 1-201)

Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Operational Level November 2018 Examination Examination Date : 17 th November 2018 Number of Pages : 06 Examination

### Chapter 24 Differential Analysis and Product Pricing Study Guide Do You Know?

Chapter 24 Differential Analysis and Product Pricing Study Guide Do You Know? Learning Objective 1: Prepare differential analysis reports for a variety of managerial decisions. How to prepare a differential

### Cycle of costing accounting

Cycle of costing accounting IDENTIFY THE PRODUCT PRDUCT SPECIFICATION I DENTIFICATION Resources used in producing the product Cost valuation Materials cost s Labor cost s Over head cost s Costs classification

### REVIEW FOR EXAM NO. 1, ACCT-2302 (SAC) (Chapters 14-16)

A. Chapter 14 (Managerial Accounting). 1. Purposes and Principles. (Page 632) REVIEW FOR EXAM NO. 1, ACCT-2302 (SAC) (Chapters 14-16) a. Provides economic/financial information (both historical and estimated)

### Reading Essentials and Study Guide

Lesson 3 Cost, Revenue, and Profit Maximization ESSENTIAL QUESTION How do companies determine the most profitable way to operate? Reading HELPDESK Academic Vocabulary generates produces or brings into

### MBP1133 Managerial Accounting Prepared by Dr Khairul Anuar

MBP1133 Managerial Accounting Prepared by Dr Khairul Anuar L2 Managerial Accounting and Costs Concepts www.notes638.wordpress.com 1 Summary of the Types of Cost Classifications Financial Reporting Predicting

### Chapter 04 Fundamentals of Cost Analysis for Decision Making

Chapter 04 Fundamentals of Cost Analysis for Decision Making 90. Carson Corporation produces and sells three products. The three products, Alpha, Beta, and Gamma, are sold in a local market and in a regional

### Multiple Choice Questions

Multiple Choice Questions 1. A cost not relevant to deciding whether to purchase a new machine is: a) The cost of the new machine b) Lower maintenance costs for the new machine c) The cost of the old machine

### Cost Behavior. Material Cost: Direct material: 1. seen in the final product 2. economic/visible to trace Indirect Material:

1 Chapter 2 Introduction to Cost Terms and Purposes Cost A cost is the value of economic resources (e.g., money) sacrificed or used up to achieve a particular objective (e.g., produce a product or perform

### MULTIMEDIA COLLEGE JALAN GURNEY KIRI KUALA LUMPUR

STUDENT IDENTIFICATION NO MULTIMEDIA COLLEGE JALAN GURNEY KIRI 54100 KUALA LUMPUR SECOND, FOURTH SEMESTER FINAL EXAMINATION, 2014/2015 SESSION FIN2033 INTRODUCTION TO MANAGERIAL ACCOUNTING DMGW-E-F-2/13,

### Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren) Chapter 2 An Introduction to Cost Terms and Purposes

Cost Accounting: A Managerial Emphasis, 16e, Global Edition (Horngren) Chapter 2 An Introduction to Cost Terms and Purposes 2.1 Objective 2.1 1) Which of the following would be considered an actual cost

### Chapter 2: Costing Systems: Job Order Costing

Chapter 2: Costing Systems: Job Order Costing Student: 1. A job order costing system measures costs of each processes using an inventory account for each. 2. The computations for costs to be transferred

### Variable Costing: A Tool for Management. M. En C. Eduardo Bustos Farías

Variable Costing: A Tool for Management M. En C. Eduardo Bustos Farías 1 Absorption Costing A system of accounting for costs in which both fixed and variable production costs are considered product costs.

### Chapter 2--Job Order Costing

Chapter 2--Job Order Costing Student: 1. Cost accounting systems are used to supply cost data information on costs incurred by a manufacturing process or department. 2. A manufacturer may employ a job

### Full file at

Chapter 02--Job Order Costing Student: 1. Cost accounting systems are used to supply cost data information on costs incurred by a manufacturing process or department. 2. A manufacturer may employ a job

### Management Accounting for Multinational Companies. Solution to the Wilkerson Case. Igor Baranov. Executive Summary

Management Accounting for Multinational Companies Solution to the Wilkerson Case Igor Baranov Executive Summary Taking into account the difference among product and high proportion of overheads, Wilkerson

### INTER CA NOVEMBER 2018

Answer 1 INTER CA NOVEMBER 2018 Sub: COSTING Topics Introduction, Cost Sheet, Standard Costing, Integral and Non- Integral Accounts, Activity Based Costing Test Code N14 Branch: Multiple Date: Note : All

### CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT

CHAPTER 5 ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT 5-1 Broad averaging (or peanut-butter costing ) describes a costing approach that uses broad averages for assigning (or spreading, as in spreading

### Bangalore South Campus Hosur road, 1km before Electronic City, Bengaluru -100

KEY - INTERNAL ASSESSMENT TEST 1 Date : 20/08/2018 Subject & Code : Cost Management Name of faculty : Dr.R.Duraipandian Note: Answer all questions (17MBAFM305) Max Marks : 40 Section : Finance Time: 8:30

### Institute of Certified Management Accountants of Sri Lanka Managerial Level May 2016 Examination. Integrative Management Accounting (IMA / ML 1-301)

Copyright Reserved Serial No Institute of Certified Management Accountants of Sri Lanka Managerial Level May 2016 Examination Examination Date : 14 th May 2016 Number of Pages : 06 Examination Time: 9.30

### Full file at

Chapter 2 Cost Concepts and Behavior rue/false Questions F 1. he cost of an item is the sacrifice made to acquire it. Answer: rue Difficulty: Simple Learning Objective: 1 F 2. A cost can either be an asset

### Gross Profitability. Operating Profitability UNPROFITABLE

Should more distributors and wholesalers practice their ABCs? Activity-based costing (ABC) is sweeping most industries and helping companies get a better handle on costs and profits. It will revolutionize

### Chapter 2--Cost Terminology and Cost Behaviors

Chapter 2--Cost Terminology and Cost Behaviors TRUE/FALSE 1. A cost object is anything for which management wants to collect or accumulate costs. ANS: T PTS: 1 DIF: Easy OBJ: 2-1 2. A production plant

### Chapter 3--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows

Chapter 3--Product Costing: Manufacturing Processes, Cost Terminology, and Cost Flows Student: 1. Which of the following types of organizations is most likely to have a raw materials inventory account?

### 10-1. Learning Objective. Identify relevant and irrelevant costs and benefits in a decision.

10-1 Learning Objective Identify relevant and irrelevant costs and benefits in a decision. 10-2 Relevant Costs and Benefits A relevant cost is a cost that differs between alternatives. A relevant benefit

### CHAPTER 26 (FIN MAN); CHAPTER 11 (MAN) COST ALLOCATION AND ACTIVITY-BASED COSTING

(FIN MAN); CHAPTER 11 (MAN) COST ALLOCATION AND ACTIVITY-BASED COSTING DISCUSSION QUESTIONS 1. Management desires accurate product costs so that its decisions regarding products are correct. Managers are

### page: 1 - Controlling - CPUT University of Applied Sciences Prof Dr Carsten Berkau, 2010

page: 1 ABC by Carsten Berkau 1.1 page: 2 Controlling FH Osnabrück 1.2 page: 3 1.3 page: 4 Osnabrück 1.4 page: 5 (1) FH Osnabrück (www.fh-osnabrueck.de) (2) Controlling Department (3) Teaching Controlling