Chapter 7 Activity-Based Costing and Management

Size: px
Start display at page:

Download "Chapter 7 Activity-Based Costing and Management"

Transcription

1 34 Chapter 7 Activity-Based Costing and Management LEARNING OBJECTIVES Chapter 7 addresses the following questions: LO1 LO2 LO3 LO4 LO5 LO6 Differentiate activity-based costing (ABC) from traditional costing. Use cost hierarchy to help assign costs to activities. Apply an ABC system in assigning costs. Describe the characteristics and use of activity-based management (ABM). Explain GPK and RCA. Describe how ABC, GKP, and RCA affect managers incentives and decisions. These learning questions (LO1 through LO6) are cross-referenced in the textbook to individual exercises and problems.

2 35 QUESTIONS 7.1 If direct labour hours are used for tending machines and equipment, small batches take fewer direct labour hours and so are allocated less overhead. However, if overhead costs increase more with setup time than with direct labour costs, the cost to set up for a large batch is likely similar to the cost of setting up a small batch. The cost per unit is then probably much lower for the large batch than for the small batch. 7.2 Organization-sustaining activities are activities related to the overall organization and unaffected by customers served or by quantities of products, batches, or units. Facilitysustaining activities are activities related to the overall operations of a production facility and unaffected by customers served or by quantities of products, batches, or units. Customer-sustaining activities are customer service activities that are independent of sales volumes and mix. Product-sustaining activities occur to support a product line or a single product if it is not part of a product line. Batch-level activities increase as the number of batches increase. These activities include setup and monitoring batches of product. Unit-level activities increase proportionately with production volumes or sales volumes. 7.3 Because ABC uses more cost pools and more cost drivers to reflect cause and effect relationships, ABC costs usually map the relation between cost and use of resources more accurately. Hence ABC costs reflect different proportions of the resource costs than do traditional costs. 7.4 No, increasing the number of cost pools and cost drivers can increase measurement error because small measurement errors for each pool and each driver can distort total cost once costs are allocated, simply from the increase in calculations that take place. In addition, if the production process is very simple and products use the same amount of resources each, increasing the number of cost pools will not increase the accuracy of the allocations. 7.5 No, because it is expensive to implement, the costs outweigh the benefits for some firms. Firms that are already operating efficiently may not benefit from an ABC system, especially if they have available capacity. Research has shown that ABC is more successful within organizations that use flexible systems, have integrated information systems, and produce a variety of products. 7.6 Yes, ABC can be used in service industries. In service organizations, ABC may be especially helpful if there are capacity limits. Service industries often have a large proportion of fixed resources, and understanding the relationship between cost and the use of these resources can improve the efficiency of the organization. 7.7 Measurement error could decrease because ABC can do a better job of allocating costs to the use of resources. Better allocation reduces problems such as product crosssubsidization, in which costs are overallocated to some products and underallocated to

3 Chapter 7: Activity-Based Costing and Management 36 others. However, measurement error could increase because increasing the number of cost pools and cost drivers results in small measurement errors for each pool and each driver. As the number of calculations increase, these small measurement errors interact as costs are allocated (rates are developed and used as multipliers), and so the size of measurement error is likely to increase. 7.8 Several costs that are incurred when implementing an ABC system include the time it takes employees or consultants to determine appropriate cost pools and cost drivers, the cost to track and measure the number of activities because these may not be recorded in the accounting system, and the cost to set up an information system to develop ABC reports. Several benefits include the ability to identify non-value added activities, and a better understanding of the use of overhead resources. 7.9 First, meet with accounting employees to learn about all of the different activities they perform. Identify activities that are homogeneous and can be pooled together. For example, budget preparation for each department is probably similar, but it may take different amounts of time according to the complexity of the department. Pool all of the various budgeting activities. Once a list of activities has been identified, employees opinions about appropriate cost drivers can be solicited. Activities that have the same cost drivers could probably be pooled. 7.1 Yes, research has shown that ABC is more successful within organizations that use flexible systems, have integrated information systems, and produce a variety of products. With ABC, a better mapping of the use of resources to each product line allows managers to choose the optimal product mix. In addition, if the processes are complex, ABC allows analysis of the activities underlying complex processes so improvements are easier to identify, as are non-value added activities. In these cases, the costs are likely less than the benefits achieved Activity-based costing analyzes the activities performed in manufacturing and service production. Once the activities are identified, costs for each activity are collected into separate cost pools. Next a cost driver is chosen that reflects changes in the costs of activities. The cost driver is used to allocate the costs of the activity to products, services, or some other cost object. There are multiple cost pools and drivers. Traditional costing uses only a few overhead cost pools and allocates the costs based on drivers such as direct labour hours, direct labour cost, or machine hours. In a traditional cost system, the cost pools are very large and so it is impossible to find an allocation base that reflects resource use. It is merely a logical system of assigning part of overhead costs to each product or service. ABC, on the other hand, selects cost pools around activities so that a cost driver can be chosen to better reflect a product or service s use of resources. Therefore, ABC systems have more cost pools and drivers. Because an ABC system is more complex, more time, effort, and money are required to implement ABC systems than traditional costing systems Activity-based costing is a method of allocating costs to products or other cost objects. Activity-based management is the process of using ABC information to improve

4 37 operations and profitability by analyzing the actual activities and processes to reduce non-value added activities, and improve the efficiency of activities. In addition, managers may be able to better understand different products uses of fixed resources, which could be important if there are capacity constraints There are several reasons for using ABC and ABM to improve an organization s environmental performance. Environment-related activities, such as disposing of hazardous substances and cleaning up spills of these substances, are non-value added. If those types of activities can be minimized, costs are also likely to be reduced. In addition, most companies would prefer to avoid the negative reputation effects that are associated with pollution problems. Once managers become aware of environmental costs, they may realize that investing in prevention activities will actually reduce costs in the long run Prevention activities are activities performed to insure defect-free production. These activities could include inspecting incoming direct materials designing and redesigning products and manufacturing processes to reduce defect rates identifying areas where defects arise and solving the underlying cause of the defects Appraisal activities are activities performed to identify defective units, and include the following activities: Inspection of products Inspection of manufacturing process Monitoring of service delivery process Testing Production activities are activities undertaken in the production or rework of failed units. These include Labour tasks and materials to produce spoiled units Reworking spoiled units Post-Sales activities are activities undertaken after the product has been sold to remedy problems caused by defects and failed units. These activities include Accepting returned products and exchanging them for good products or refunding their cost Repairing defective units Preparing for and participating in legal actions that result from defective units 7.15 ABC, GPK, and RCA are costing systems that use multiple cost pools and more accurately map costs to the use of resources than traditional costing systems. Implementation for all three methods requires identifying multiple cost pools and analyzing activities or resources to discover cause-and-effect relationships of cost and

5 Chapter 7: Activity-Based Costing and Management 38 cost drivers. ABC analyzes activities and uses a specific hierarchy. GPK considers cost centres that are usually smaller than departments, perform a single repetitive activity and are under the control of one manager. RCA analyzes cost centres and resource cost pools. Both GPK and RCA focus on volume of time. GPK uses practical or budgeted capacity for the denominator level of the cost driver, while RCA uses theoretical capacity. ABC is best used for cost control, improving efficiency and understanding the relationship between costs and the use of resources. GPK focuses on marginal costs and so it can be used for short term decisions, RCA can be used for short-, mid-, and long-term decisions.

6 39 MULTIPLE-CHOICE QUESTIONS 7.16 Which of the following statements best describes the objective of kaizen costing? a) To accumulate costs that are associated with a short-term or long-term project b) To determine all costs related to the quality of a product c) To reduce costs and improve quality through continuous improvement d) To simplify cost accounting in a just-in-time environment Ans: C 7.17 Which of the following statements best describes activity-based management? a) ABM is an approach developed in response to the competitive pressures of today sglobal market. b) ABM does not use activity-based costing to improve a business. c) ABM is designed to set the goals and objectives of an organization. d) ABM focuses on functional areas and products. Ans: D 7.18 Which of the following statements is correct? a) Machine-related costs are batch-level activities. b) Engineering costs are unit-level activities. c) Inspection and testing costs are organization-sustaining activities. d) Supervision and scheduling costs are facility-sustaining activities. Ans: A 7.19 What is the overhead cost per unit using activity-based costing? VE1 VE2 a) $42. $84. b) $67.86 $66.76 c) $77. $61. d) $84. $56. Ans: B (VE1 Machine-related: $62,/(1,*2 + 1,5*4) * 2 MH = $15.5 ) (VE1 Supervision and scheduling: $48,/(14+18) * 14/1 = $21.) (VE1 Engineering: $32,/(24+26) * 24/1 = $15.36) (VE1 Inspection and testing: $26,/(32+2) * 32/1 = $16.) (VE1 $ $21. + $ $16. = $67.86)

7 Chapter 7: Activity-Based Costing and Management 7.2 What is the overhead cost per unit using traditional costing? VE1 VE2 a) $42. $84. b) $67.2 $66.2 c) $73.5 $63. d) $8.64 $58.24 Ans: A ($168,/(1,*2+1,5*4) * 2 = $42.) 4

8 41 EXERCISES 7.21 Mapping Costs to the Cost Hierarchy Fairgood& Hernandez, CA A. Receptionist salary is an organization-sustaining activity (1) because the receptionist serves everyone who comes through the door and thus cannot be identified with one product or unit. B. Financial forecasting software is an organizational-sustaining activity (1) if it is used to forecast sales for the entire company. However if it used only by one product line, it is a product-sustaining activity (4). C. Photocopy machine rental is anorganization-sustaining activity (1) when everyone uses the machine, but could be a product, batch or unit related cost if a password were used to keep track of copies made for each client or department. D. Janitorial service is anorganization-sustaining activity (1) because the entire facility uses this evenly. E. Audit manager s salary is a unit-level activity (6)because the manager is in charge of a number of different audits and bills his or her time to each audit. F. Long distance telephone charges are unit-level activity (6) if the bill includes details of to whom the calls were made, and could be product-sustaining activity (4) if the calls are marketing a particular product. It just depends upon the purpose of the calls. Some companies have Watts lines and pay a flat fee for all long distance calls. In this case the cost is an organization-sustaining activity (1). G. Meal costs for entertaining clients could be a customer-sustaining activity (3)if related only to that particular customer, or product sustaining activity(4)if the customer is associated with only one product. H. Costs of annual employee golf party is an organization-sustaining activity (1)because it benefits all departments. I. Office supplies such as paperclips and tablets of paper are organization-sustaining activity (1)costs unless they can be traced to a particular product or batch. J. Annual subscription for income tax regulations is a product-sustaining activity (4)if it pertains to one department of the firm. If it pertains to the entire firm, it is a facilitysustaining activity (2).

9 Chapter 7: Activity-Based Costing and Management Identifying Costs Using the ABC Cost Hierarchies Steam Whistle Brewing Following are the CMA answers to this question. However, one could argue that some of the unit-level costs could instead be categorized as batch-level. A. Facility-sustainingcosts: Manufacturing facility $1,5, B. Product-sustaining costs: Product development $1,25, C. Batch-level costs: Production setup D. Unit-level costs: Materials handling Production line labour Power (assuming most power is to cool beer and run machines, not for overhead) Total unit-level costs 7.23 $7, $ 85, 2,5, 5, $3,85, ABC Cost Hierarchy A. Unit-level activities and costs relate to each unit produced, in this case, each car rented. The cost of washing each car between rentals is an example of a unit level cost. Costs for the activities of making the reservation, turning the vehicle over to the renter, and completing the paperwork at the end of the rental are also unit-level. B. Batch-level activities and costs relate to the number of batches produced. For a car rental fleet, cars at a number of outlets are probably sent for oil changes or other routine maintenance in batches. Car rental companies located off-site near an airport usually operate a shuttle service from the airport to the rental car location. Multiple passengers are usually picked up and dropped off on each run of the shuttle. Batch-level costs for the shuttle would include vehicle depreciation, maintenance, and gasoline, plus the driver s labour costs. C. Product-sustaining activities and costs relate to entire product lines. For a car rental company, the different types of cars for rent could be considered product lines, for example economy cars, mid-sized cars, and so on. Or the company might see its product lines more broadly, such as a product line of cars and a separate line for trucks. Advertising and marketing costs are likely to be product-line related if the company advertises either trucks or cars, but not both. D. Customer-sustaining activities and costs relate to the different clients. Sometimes businesses establish a relationship with car rental agencies if employees need to travel by car for business. These customers may require special attention, such as car delivery, or last minute rentals. The costs of these services are customer-sustaining. Rental companies also have programs such as the Hertz #1 Club, where members receive

10 43 preferential treatment. Special costs for these programs include extra personnel to process the rental and park the vehicle in an easily accessible location. E. Facility-sustaining activities and costs relate to the facility. For a car rental agency, these could include depreciation and maintenance of the building and parking lots for each outlet. Facility-sustaining costs would also include the facility manager s salary, electricity and janitorial service, computer terminals, and property taxes. F. Organization-sustaining activities and costs relate to the entire organization. The CEO s salary, and building lease, rent or depreciation costs at the company s headquarters are all organization-sustaining costs. Companies such as Hertz also have large organizationwide costs for computerized reservation and vehicle inventory systems Cost Pools and Cost Drivers F D G B A E C 7.25 Machining (As machine hours increase, costs such as maintaining machines increase) Purchasing activities (As number of invoices increases, costs such as wages for employees filling out invoices and supplies used by these employees increase.) Inspection (As the number of units produced increases, the number of units inspected also increases.) Assembly (As the number of parts increases, it takes more overhead cost in material handling, etc. to assemble the product.) Payroll (As number of employees increases, more employee time and supplies are needed to produce paychecks.) A special quick freezing process for food (Food is usually frozen in batches. As the number of batches increases, costs such as electricity and quick-freezing supplies increases.) Laundry in a hospital (As the number of laundry pounds increases, more labour and supplies costs are incurred because more batches of clothes are washed. Traditional Versus ABC Costing - Kalder Products A. Total engineering change cost Total machine hours Rate Total allocated cost for AJ4 Total allocated cost for AJ6 Total allocated costs 6 change orders *$3 each 1 MHr MHr $1,8 / 2.5 MHr 1 MHr * $72/MHr 1.5 MHr * $72/MHr $1,8 2.5 MHr $72/MHr $ 72 1,8 $1,8

11 Chapter 7: Activity-Based Costing and Management B. Total engineering change cost Total allocated cost for AJ4 Total allocated cost for AJ6 Total allocated costs 44 6 change orders *$3 each $1,8 4 change orders *$3 2 change orders * $3 $1,2 6 $1,8 C. Comparison of costs allocated under the two systems: Traditional costing ABC costing Product Cross Subsidization Overcharge (Undercharge) Percent Overcharge (Undercharge) AJ4 $ 72 1,2 AJ6 $1,8 6 Total $1,8 1,8 $ (48) $ 48 $ (4)% 8% Cross-subsidization means that one product is allocated more overhead cost relative to its use of overhead resources and, therefore, other products overhead cost is less than their use of resources ABC Cost Hierarchy, Traditional Versus ABC Costing Yonex Company A. Activity Testing and Inspections Machine Setup Machine Stamping Plant Maintenance Classification Batch level activities and costs Batch level activities and costs Unit level activities and costs Facility sustaining level activities and costs B. Total Labour Hours for two products: 1,5 + 2,5 = 4, hours $4, / 4, hours = $1 per labour hour MB-R: $1 x 1,5 = $15, MB-X: $1 x 2,5 = $25, Using the traditional costing method, MB-R is allocated $15, of the overhead costs, while MB-X is allocated $25,.

12 45 C. The overhead rate cost per activity is calculated as follows: Activity Testing and Inspections Machine Setup Machine Stamping Plant Maintenance Activity Testing and Inspections Machine Setup Machine Stamping Plant Maintenance Total Overhead Allocated MB-R , 1,5 Total MB-X Activity , 4, 2,5 4, OH Rate $15 $4 $4 $1 MB-R , 1,5 OH Rate TotalCost Cost/Activity $12, $15 $8, $4 $16, $4 $4, $1 MB-R OH $6, $48, $1, $15, $223, MB-X , 2,5 MB-X OH $6, $32, $6, $25, $177, D. Using the traditional costing method, MB-X is over costed $25, versus $177,. This is likely to lead to inaccurate pricing and make the product less competitive in the market. ABC costing better matches resources usage to the overhead costs, and thus can help managers make better decisions, especially in resources usage, pricing, product mix, or performance evaluation Traditional Versus ABC Costing CompuTrain Learning Centre A. Overhead rate for each type of activity: Registration Computer Depreciation Rent Total Overhead Costs Overhead Rate Cost Activity Cost/Activity $1, = 4 students $25 per student $36, 1,4 + 1, = 24hrs $15 per hour $1, per $26, = 26 classrooms classroom $72,

13 Chapter 7: Activity-Based Costing and Management Registration Computer Depreciation Rent Total Overhead Costs Overhead Rate $25 $15 $1, IT Training 12 $3, 1,4 $21, 16 $16, $4, 46 Office Training 28 $ 7, 1, $ 15, 1 $ 1, $ 32, B. The average cost per student for each service: Direct Materials (books & courseware) Direct Labour (instructors) Overhead: Registration Computer Depreciation Rent Total Overhead costs Total Costs # of students Cost per student IT Training Office Training $9, $6, 15, 9, 3, 21, 16, 4, $64, 12 $ , 15, 1, 32, $47, 28 $ C. Under the traditional costing method, IT Training was over charged by $5, for the overhead costs, which subsidized Office Training. As a result, IT Training per student was over costed by $41.67, and Office Training per student was under costed by $ IT Training was over costed because based on the traditional costing method, IT Training had higher labour cost, and overhead was proportionally costed more to the IT Training. Using the ABC method, the overhead was charged based on the resources usage, which better matched the activities to the costs.

14 ABC Costing, ABM - Applewood Electronics A. 1. Manufacturing cost per unit under traditional cost accounting In the traditional cost accounting system, overhead is allocated to products based on machine hours. The rate per hour is calculated as follows: Total estimated overhead $4,8, Estimated machine hours: Monarch (8. hours x 22, units) Regal (4. hours x 4, units) Total estimated machine hours 176, 16, 192, Estimated allocation rate per machine hour ($4,8,/192,) $25. The total manufacturing cost per unit is the sum of per unit direct material, direct labour, machine usage, and allocated overhead, as follows: Direct material Direct labour Machine usage Overhead Total 1.5 DL hrs x $12 8 machhrs x $18 8 machhrs x $25 Monarch $ $ DL hrs x $12 4 machhrs x $18 4 machhrs x $25 Regal $ $ Manufacturing cost per unit under ABC First, calculate the allocation rate for each of the ABC pools: Soldering Shipments Quality control Purchase orders Machine power Machine setups ($942,/1,57, solder joints) ($86,/2, shipments) ($1,24,/77,5 units inspected) ($95,4/19,8 purchase orders) ($57,6/192, machine hours) ($75,/3, setups) $.6 per solder joint $43. per shipment $16. per inspection $5. per purchase order $.3 per machine hour $25. per setup Next, calculate total manufacturing costs allocated to each product under the ABC system and then calculate the total manufacturing cost per unit:

15 Chapter 7: Activity-Based Costing and Management Monarch Soldering 1,185, solder jts x $.6 $ 711, Shipments 16,2 shipments x $43 696,6 Quality control 56,2 inspections x $16 899,2 Purchase orders 8,1 POs x $5 4,5 Machine power 176, machhrs x $.3 52,8 Machine setups 16, x $25 4, Total ManufacturingOverhead $3,16,1 Total Manufacturing Overhead Per Unit $3,16,1/22, units Direct material Direct labour 1.5 DL hrs x $12 Machine usage 8 machhrs x $18 Total ManufacturingCost Per Unit $ $ Regal 385, solder jts x $.6 $ 231, 3,8 shipment x $43 163,4 21,3 inspections x $16 34,8 19,98 POs x $5 549,9 16, machhrs x $.3 4,8 14, x $25 35, $1,639,9 $1,639,9/4, units 3.5 DL hrs x $12 4 machhrs x $18 $ $1,17.98 B. The traditional costing system allocates a lump sum of overhead based only on machine hours, while the ABC system uses six cost pools to allocate the overhead. Allocations using these cost pools and cost drivers more accurately reflect the flow of resources. C. 1. Operating profit per unit under traditional cost accounting: Monarch Selling Price $ 9. Manufacturing (57.) Selling, General, and Administrative (265.) Traditional costing operating profit $ 65. Regal $1,14. (798.) (244.6) $ Operating profit per unit under ABC: Selling Price Manufacturing Selling, General, and Administrative ABC costing operating profit Monarch $9. (513.64) (265.) $ Regal $1,14. (1,17.98) (244.6) $ (212.58) D. Based on the profit information using ABC, Applewood should concentrate on the Monarch. Under ABC, it appears that the organization incurs a loss for each unit sold of Regal. Using this ABC information would definitely affect the recommendation because one product appears to have a negative profit margin. Note: This problem is from an old CMA exam. The calculations shown in this problem probably include fixed costs. Remember from Chapter 4 that organizations need to emphasize the product with the highest contribution margin to maximize profits; however, that product cannot be identified with the information given in this problem. Applewood would need to separate costs into flexible (those that vary with activity) and committed (those that do not vary with activity) to determine the ABC contribution

16 49 margin for each product. Once this is done, the product with highest contribution margin can be identified and emphasized ABC Costing, ABM - Palmer Company A. Manufacturing cost per unit: Machine setup Material handling Machining Assembly Inspection Direct materials Total Costs 2 setups x $5. 1 units x 19 parts x $.5 1 units x 1.25 machine hours x $26. 1 units x 1.5 direct labour hours x $22. 1 units x $12. 1 units x $1. Cost Per Unit $18,8/1 units $ ,25 3,3 1,2 1, $18,8 $188 B. Full cost per unit Total manufacturing cost per unit Research and marketing costs per unit Other non-manufacturing costs per unit Total full cost per unit $ $648 C. Cost savings required: First, calculate the maximum full cost that would allow the company to achieve a profit of 1% based on full cost: Selling price = Full Cost + 1% x Full Cost $65. = 1% x Full Cost + 1% x Full Cost $65. = 11% x Full Cost Full Cost = $65./11% Full Cost = $59.91 Next, calculate the difference between the maximum full cost calculated above and the current full cost. This is the amount of cost savings required to achieve the desired profit. Full cost per unit Full cost needed to achieve desired profit Cost savings required $ $ 57.9

17 Chapter 7: Activity-Based Costing and Management ABC in Job Costing, ABM, Non-Value-Added Activities - Kestral Manufacturing A. Following are the ABC allocation rates: Activity Machine set-up Material handling Product design Number of inspection Cost / Activity level $ 4, / 4 16, / 16, 1, / 2, 26, /13, $56, Allocation rate $1 $1 $5 $2 For job 42, overhead costs = (2x$1)+(6x$1)+ (4x$2) +(2x$5) = $2,6 B. For job 43, overhead costs = (4x$1)+(2x$1)+(2x$2)+(1x$5) = $6, For the 1 units completed the cost per unit would be calculated as follows: Direct Materials Direct Labour Overhead Allocated Total Job cost 24, 4, 6, 34, Cost per unit = 34, / 1 units = $34 C. Non-value added activities are tasks or functions that are unnecessary and waste resources because they do not increase the worth of an organization s goods or services to customers. At Kestral, non-value-added activities include moving materials from place to place (such as from receiving dock to warehouse to one work area and then to another work area). The company could reduce costs by minimizing the handling of materials. Another non-value-added activity is inspection. With sufficient quality improvements and continuous inspection by workers during production processes, the need for a separate inspection process can be reduced or eliminated. Set-up costs are also considered non-value added and the set-up activity could be analyzed to reduce steps and materials if possible so that costs are reduced Design ABC System, Per-Unit ABC Costs, Uncertainties - Elite Daycare A. There are several cost objects that could be chosen for Elite Daycare, depending on the planned use of information. The director may want to develop a function for total costs of the daycare for budget or benchmarking purposes. In that case, the cost object is the daycare itself. Alternatively, she might choose the type of service (full-time or part-time) as the cost object. If she wanted to better understand the cost per child, she could choose a per-child cost object. This problem focuses on the daycare cost function, so the cost object is the daycare program.

18 51 Next, cost pools need to be developed. For Elite Daycare, there appear to a number of different activities: greeting and leaving, preparing and serving food, supervising naps, supervising recreation, and activity time. The greeting and supervising activities can probably be combined into one cost pool. However, supplies are probably used during activity time, and the director may want to know an approximate cost per child for activity time. Therefore, a single pool can be used for greeting, supervising naps, and recreation; a pool for supervising activities; and another pool can be used for meal-related activities (preparing and serving food, monitoring behavior). Next, cost drivers for each pool need to be chosen. Cost drivers for greeting and supervising activities could be number of children or time spent. Because supervising naps and recreation activities are similar to greeting, cost driver choices would be similar for these two pools. A number of different children can be supervised at one time, so time spent would be probably be easiest to track and provide an appropriate accounting of costs related to supervising activities. Cost drivers for preparing and serving food could be either the number of meals served or the number of children served. Tracking meals served is probably just as easy as tracking number of children, but meals are more closely related to food preparation, so number of meals served will be used as the cost driver. Cost drivers for supplies could be number of art activities or number of children, among others. It would be easiest to track number of children, and it is likely that each child uses similar amounts of supplies. B. Annual cost per child The percentage of time for the greeting and supervising pool is 3% (2%+1%), 2% for meal-related activities, and 5% for supervising educational activities. These times can be further categorized into full-time and after-school by considering the percentage of total hours each program uses. There are 1 hours available per full-time child, and 3 hours per child after school. Therefore, there are 3 (1 hours x 3 children) full-time child hours available per day and 3 (3 hours x 1children) after-school child hours available. Of the total 33 hours available, 91% (3/33) of the hours are full-time child hours, and 9% are after-school child hours. Now the calculation of the ABC meal related activities cost requires several steps, as follows: Estimated annual volume of snacks/meals: (Assume 5 days per week x 5 weeks = 25 days) Full-time (3 children x 3 snacks & meals x 25 days) After-school (1 children x 1 snack x 25 days) Number of meals served Total food cost Time spent on meal preparation (2% x $1,) Total cost of snacks and meals per year Estimated cost per snack/meal ($4,/25,) 22,5 2,5 25, $2, 2, $4, $1.6

19 Chapter 7: Activity-Based Costing and Management The total annual ABC cost per child is calculated as follows: Full-Time Snacks/meals: Full-time (3 snacks/meals x 25 days x $1.6) $1,2 After-school (1 snack/meal x 25 days x $1.6) Supplies: Full-time ($1,/3 children) After-school ($8,/1 children) Supervising educational activities: Full-time (5% x 91% x $1,)/3 After-school (5% x 9% x $1,)/1 52 After-School $ , Supervising naps, recreation, and greeting: Full-time (3% x 91% x $1,)/3 After-school (3% x 9% x $1,)/ Total Annual Cost Per Child $3,96 $1,92 C. The employees work with both full-time and after-school children, and there are uncertainties about how much time they spend with each type of student. If the two groups of children are combined for some activities, then any allocation of salaries or wages to each service is arbitrary and unlikely to reflect the two services use of employee time. If the two services are completely separate, the cost of salaries and wages can be traced directly to the service. However, for activities such as snacks, some employee time is probably spent preparing snacks for both groups at once, and allocating this cost would be an uncertain and arbitrary process. It is impossible for employees to track exact time spent per service for activities undertaken for both services, such as snacks and possibly meeting parents at the end of the day. There are uncertainties about whether allocation bases reflect the use of resources because these are fixed resources, and the cost does not vary proportionately with any type of volume measure. Therefore, any allocation is arbitrary and will not accurately reflect use of those fixed resources ABM, Customer Profitability A. Activity-based management involves the use of ABC cost information to develop a comparison of the costs and benefits of tasks and procedures undertaken within the organization to identify improvements that can be made in quality and efficiency or cost reductions. B. A high-cost customer is one for whom contribution margin is low, relative to other customers, but who requires costly services such as special customized products, special shipping procedures, small production and delivery quantities, specialized post-sales

20 53 service, or customer services before purchasing, and so on. Low-cost customers would provide relatively more contribution from their orders with little special treatment. These customers may order large quantities of regular products and not require any special delivery or help before or after the sale. C. There are many possible ways to write this paragraph, and the wording depends on the assumptions that are made about the particular audience for the paragraph, the customer, and the nature of the company s business. Below is a sample paragraph. Several approaches can be taken to improve profitability for high-cost customers. Accountants can identify costs for these types of customers, and the company can negotiate with each customer to either charge for some of the specialized services or motivate the customers to reduce the amount of costly services required. Ways to reduce costs include improving the predictability of orders, reducing the amount of engineering changes or other product changes required, and finding standard products that might substitute for customized products. Customers requiring large amounts of technical support following a purchase might be willing to pay for this service Quality Costs Using ABC Versus Traditional Costing - New-Rage Cosmetics A. 1. Quality control cost per order using ABC Incoming material inspection In-process inspection Product certification Total quality control costs 12 types of material x $ ,5 units x $ orders x $77. Quality control cost per order $4,513./25 orders $ ,45. 1,925. $4,513. $ Quality control cost per order using traditional cost accounting Total quality control costs assigned = Directlabour costs x 14.5% = $27,5 x 14.5% = $3,987.5 Quality control cost per order = $3,987.5/25 orders = $159.5 B. Under the ABC system, the costs are more related to the resources used to insure quality control. These costs are primarily product inspection and certification costs, and the allocated costs change as the types of materials and number of units inspected change. Under traditional cost accounting, direct labour costs may be related to number of units inspected if it takes more labour to produce more units, but in automated manufacturing

21 Chapter 7: Activity-Based Costing and Management 54 settings this is not always the case. In addition, direct labour costs are not related to types of materials. Therefore, using direct labour costs to assign quality costs provides poor quality information about the variation in quality control costs among different orders. Accordingly, the ABC system provides more accurate costs for quality control Categorizing Quality Activities Please see Exhibit 7.7 for more details about these answers. A 1. Inspection of units when they are 1% complete to remove defective units. P 2. Design of a process with as few parts as possible to reduce the chance of defects. PS 3. Warranty costs for defective products returned to the factory for rework. PR 4. Reworking of spoiled units before they leave the factory. PS 5. Costs to defend the company against lawsuits for damages caused by defective products. _P or A_ 6. Tracking number of defects for each manufacturing team and posting of daily defect rates on a plant-wide bulletin board. (Used to motivate employees to improve quality, also requires appraisal) PR 7. Redesign of a manufacturing process to reduce the rate of defects GPK Multi-Level Income Statement -- Krishnan Manufacturing Following is a multilevel income statement for the Krishnan Manufacturing Plant using a GPK approach. Revenues Variable costs Contribution margin 1 Fixed costs, product Idle capacity costs Contribution margin 2 Fixed costs, company GPK profit $8, 2, 6, 15, 75, 375, 2, $175, The problem states that Krishnan s accountant aggregates the idle capacity costs. Thus, the solution above assumes that the $75, idle capacity cost relates only to the Krishnan plant, not to the entire company.

22 GPK, RCA, Cost Rates -- Diagnostic Services A and B. Cost function calculations: X-ray supplies Fixed costs: $3, per year Proportional costs: $2.1 per X-ray hour 5, budgeted X-ray hours = $1,5 Electricity Fixed costs: 6, kwh $.1 per kwh = $6 Proportional costs: 4kWh per hour of X-ray use 5, budgeted X-ray hours $.1 per kwh = $2, X-ray technician Fixed costs: 3 technician hours $45 per labour hour = $13,5 Proportional costs: 1 technician hour per hour of X-ray use 5, budgeted X-ray hours $45 per labour hour = $225, Maintenance Fixed costs: 1 maintenance hours $2 per hour = $2, Proportional costs:.424 maintenance hour per hour of X-ray use 5, budgeted X-ray hours $2 per maintenance hour = $4,24 Facilities Fixed costs: 1, square feet $25 per square feet = $25,

23 Chapter 7: Activity-Based Costing and Management 56 A and B (continued). Cost rates under GPK and RCA: GPK Cost Centre: X-Ray Fixed Output Measure X-Ray Hours: Practical capacity 5,6 Budgeted capacity Primary Costs: Depreciation $ 93,1 Supplies 3, Electricity 6 Total Primary Costs 96,7 From Other Cost Pools (i.e., Secondary Costs): Labour (technician) 13,5 Maintenance - equipment 2, Maintenance - facilities 25, Fully Assigned Resource Costs $137,2 Fully Assigned Cost Rate Per Hour $24.5 Proportional 5, $ 1,5 2, 12,5 225, 4,24 $241,74 $ RCA Resource Cost Pool: X-Ray Fixed Output Measure X-Ray Hours: Theoretical capacity 8,76 Budgeted capacity Primary Costs: Depreciation $ 93,1 Supplies 3, Electricity 6 Total Primary Costs 96,7 From Other Resources (i.e., Secondary Costs): Labour (technician) 13,5 Maintenance - equipment 2, Maintenance - facilities 25, Fully Assigned Resource Costs $137,2 Fully Assigned Cost Rate Per Hour $ Proportional 5, $ 1,5 2, 12,5 225, 4,24 $241,74 $ C. Cost for patient requiring.5 hour of time: GPK cost = ($ $48.348).5 hour = $ RCA cost = ($ $48.348).5 hour = $32.5 D. GPK cost is higher than RCA cost because RCA uses theoretical capacity for fixed costs. Theoretical capacity is larger than budgeted capacity in the denominator, resulting in a smaller cost rate.

24 57 E. The technician needs to be on hand for the hours that the diagnostic centre is open. There are likely certain tasks that need to be done on a daily basis to prepare the machine. Costs for maintenance are similar; some routine maintenance is done on a regular basis and does not depend on the number of X-ray hours. Even though these costs are proportional in the technician and maintenance cost pools, a portion of each cost is fixed with respect to X-ray equipment usage GPK, RCA Capacity Analysis Diagnostic Services Estimated volume X-ray hours Fixed cost rate per X-ray hour Budgeted Capacity 5, $27.44 * Practical Capacity 5,6 $24.5 Theoretical Capacity 8,76 $ Fixed costs allocated to patient services (5,2 hours fixed cost rate) $142,688 $127,4 $81,443 Assigned to idle capacity: Unplanned idle capacity (5, 5,2) hours fixed cost rate Planned idle capacity: (5,-5,) hours $27.44 (5,6-5,) hours $24.5 (8,76-5,) hours $ Total Fixed Costs Assigned ($5,488) ($4,9) 14,7 58,889 $137,2 $137,2 * $137,2 fixed costs 5, budgeted capacity = $27.44 ($3,132) $137,2

25 Chapter 7: Activity-Based Costing and Management 58 PROBLEMS 7.38 Setting Up an ABC System, Uncertainties A Identify and sum the costs into activity-based cost pools Choose a cost driver for each activity For each ABC cost pool, allocate overhead costs to the product or service Identify the relevant cost object Identify the activities necessary for production or service delivery For each ABC cost pool, calculate a cost allocation rate B. All of these steps include uncertainties. After a cost object is chosen, uncertainty exists about whether all of the activities necessary to produce the good or service are identified. Some activities may be overlooked, or the set of activities may include ones that rarely occur and would be an immaterial part of the process. In addition, uncertainties exist about the optimal number of activities for a given cost pool. There is uncertainty about whether the costs for developing additional cost pools would exceed the benefits. Uncertainties also exist about whether the system would be more or less accurate when potentially separate activities are grouped together. When assigning costs to activities, there is uncertainty about whether all direct costs have identified and traced to each activity. For example, supplies such as cloths used to wipe off excess oil during the set-up process may be overlooked. In addition, the assignment of a common resource cost, such as a supervisor salary, may not reflect the time the supervisor spends on different activities. For each cost pool, there is uncertainty about whether all of the potential cost drivers have been identified and whether the chosen cost driver most accurately reflects the use of resources within that cost pool. In addition, some activities are interdependent, and the cost pools and cost drivers may not accurately reflect these interdependencies. Choosing a cost driver for each activity requires the use of judgment. Some activities may have an obvious cost driver, while others could have several different drivers. Assembling a box, for example, may only require direct labour and thus have a clear cost driver. Other activities could include adding materials, using machine hours, and using direct labour hours. For these types of activities, several different cost drivers could be chosen. The accountant implementing ABC must identify the driver that best relates changes in activities to changes in cost. Measuring the amount of cost driver used per product is sometimes uncertain. Suppose time spent cleaning is a cost driver for a housekeeping cost pool. When a new employee is hired, the actual time may be longer than the normal time for the employee s first several months. Therefore, uncertainty exists about whether the allocation base volumeis

26 59 accurately set, or whether the activity has been correctly measured when allocating the cost. C. There are many correct choices for this answer. The key is to focus on uncertainties and to explain why the need for judgment might be greater in one step than in the others. Below are two sample answers. The choice of cost drivers might require the greatest use of judgment because of the large number of uncertainties involved. There are uncertainties about whether all possible cost driver choices have been identified, and whether the selected cost driver actually reflects the use of resources of the cost pool more accurately than other choices. In addition, some high quality cost drivers may not be measured very accurately, there are certainties about whether a particular cost driver provides the best information. The choice of activity cost pools might require the greatest use of judgment because it not only involves a large number of uncertainties (as discussed in Part B above), but it also affects all of the remaining steps. Choices that are made about the activities influence the cost and benefits achieved from the entire system ABC Cost Hierarchy, Uncertainties A. A cost hierarchy in ABC divides activities into six levels: unit, batch, product, customer, facility, and organization. This allows accountants to more carefully identify activities and their associated costs at all levels within the company. B. Following are several reasons for uncertainty in classifying costs into the cost hierarchy categories; students may think of others. As costs are categorized into cost hierarchy categories, accountants might not completely understand the interdependencies within a group of activities. For example, costs that appear to be batch-level costs could also be affected by the number of units or the weight of the batch. Managers cannot be certain that the chosen cost driver in a specific cost category independently reflects cost changes. Additionally, costs that appear to be organization-level costs could be driven by changes in volumes. For example, the costs of billing and interacting with customers regarding their bills could increase step-wise as a fixed cost. Accountants are uncertain whether this cost increases as the number of customers increase, or whether it is an organizationlevel cost that will not change regardless of volumes. C. Dividing costs into six levels helps accountants better identify all aspects of costs in a company. Thinking about a particular level helps accountants focus on activities that occur at that level. In addition, once activities have been developed for a particular level, it becomes easier to know how costs change with volumes of activity. For example, property taxes are a facility-level cost and therefore would not increase based on the number of batches produced, but only on the value of the building itself. Using these six levels helps accountants better map resource usage to products and services.

27 Chapter 7: Activity-Based Costing and Management Cumulative Problem (Chapter 5): ABC Versus Traditional Job Costing, Cost Driver Uncertainties, Advantages and Disadvantages - Vines Corporation A. Per unit cost using the old method: Direct materials Direct labour Indirect Total Job Order 41 $9,7/1 units $ 97. $75/1 units 75. $115x25 hrs/1 units $1,332.5 Job Order 411 $59,9/2 units $299.5 $11,25/2 units $115x375 hrs/2 units $ B. Cost per unit cost using ABC Job Order 41 Material handling 5 parts x $.4 $ 2. Milling 15 machhrs x $2 3,. Grinding 5 parts x $.8 4. Assembly 2 assembly hrs x $5 1. Inspection 1 units x $ Shipping 1 order x $1,5 1,5. Direct material 9,7. Direct labour 75. Total costs for order $15,81. Job Order 411 2, parts x $.4 $ 8. 1,5 machhrs x $2 21,. 2, parts x $.8 1,6. 3 assembly hrs x $ units x $25 5,. 1 order x $1,5 1,5. 59,9. 11,25. $11,2. Total costper unit $11,2./2 units $15,81./1 units $1,581. $56. C. In the traditional costing system, the indirect costs were combined into a single cost pool and then allocated based on direct labour hours used by each order. Direct labour hours may or may not be related to costs in the overhead pool. It s unlikely that they are related to a very large portion of those costs. However, under ABC, the indirect costs are divided into six cost pools and allocated using cost drivers that are more likely to reflect the use of resources. Therefore, the cost allocations provide more accurate information about costs. D. There are many uncertainties about the choice of cost driver for each activity-based cost pool. There may be several different drivers that could be used, and several of them could be similar in their ability to relate cost to the activity. For example, if a school has classrooms that are similar in physical size with similar numbers of students in each class, number of rooms may be an adequate cost driver. However, if younger students are messier and cleaning their rooms takes longer, then time spent might be a better cost driver. Sometimes time spent is not measured. In this case number of rooms could be used, or square feet if rooms are different sizes. And this is a fairly forthright activity with easy to identify cost drivers. Other activities can be much more complex, and finding cost drivers can be more difficult. Identifying the most appropriate cost driver requires effort, and the best driver may be expensive to measure. If the activity changes in any way, a new driver might be needed.

28 61 E. An ABC system allocates costs using more cost pools and more appropriate cost drivers, so costs are likely to be less distorted. For example, if direct labour hours were abnormally high for one job, under the traditional costing system the indirect costs assigned to that job would be higher even if more costs were not incurred. Under ABC this possibility for error is minimized because there are more allocation bases than direct labour hours. The ABC system is more costly to implement because it takes time to develop and many employees need to be involved. ABC is more useful in analyzing operations to improve quality and reduce costs. Non-value added activities can be identified and other activities can be simplified, once they have been identified. This doesn t tend to happen with traditional costing Cumulative Problem (Chapter 6): ABC Versus Traditional Process Costing, ABM -Kim Mills A sample spreadsheet showing the solutions for this problem is available on the Instructor s web site for the textbook (available at A. 1&2 Following are excerpts from a sample spreadsheet for this problem. Input Area Denim Direct Costs: Direct materials Direct labour cost $8, $66 Light-Weight Cotton Heavy-Weight Cotton $24, $1,32 $2, $92 Overhead Costs: Machine Setup Inspection Total Overhead Volumes: Units Direct labour hours Machine hours Number of set-ups Inspection hours Total $52, $2,9 $4, $11, $6,996 $57,996 1, , 66 1, , 46 1, , 145 3,

Chapter 6 Process Costing

Chapter 6 Process Costing Chapter 6: Process Costing 239 Chapter 6 Process Costing LEARNING OBJECTIVES Chapter 6 addresses the following questions: LO1 LO2 LO3 LO4 LO5 Assign costs to mass-produced products using equivalent units

More information

ACCTG 221 / ABC Costing

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

More information

Activity Based Costing

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

More information

Activity Based Costing

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

More information

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 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

More information

Chapter 3 Activity-Based Costing

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.

More information

An accounting perspective: Business insight

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.

More information

Chapter 02 - Cost Concepts and Cost Allocation

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

More information

Chapter 02 - Cost Concepts and Cost Allocation

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

More information

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 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

More information

Full file at

Full file at 02 Student: 1. All costs incurred in a merchandising firm are considered to be period costs. True False 2. Amortization is always considered a product cost for external financial reporting purposes in

More information

COST C O S T COST 1/12/2011

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

More information

ACTIVITY BASED COSTING

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

More information

1. The cost of an item is the sacrifice of resources made to acquire it. 2. An expense is a cost charged against revenue in an accounting period.

1. The cost of an item is the sacrifice of resources made to acquire it. 2. An expense is a cost charged against revenue in an accounting period. Chapter 02 Cost Concepts and Behavior True / False Questions 1. The cost of an item is the sacrifice of resources made to acquire it. True False 2. An expense is a cost charged against revenue in an accounting

More information

Chapter 02 Cost Terminology and Cost Behaviors. Lecture Outline. LO.1 Why are costs associated with a cost object? A. Introduction

Chapter 02 Cost Terminology and Cost Behaviors. Lecture Outline. LO.1 Why are costs associated with a cost object? A. Introduction Solution Manual for Cost Accounting Foundations and Evolutions 8th Edition by Kinney and Raiborn Link full download of Solution Manual: https://digitalcontentmarket.org/download/solution-manual-for-costaccounting-foundations-and-evolutions-8th-edition-by-kinney-and-raiborn/

More information

Activity-Based Costing. Managerial Accounting, Fourth Edition

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.

More information

CHAPTER ONE: OVEVIEW OF MANAGERIAL ACCOUNTING

CHAPTER ONE: OVEVIEW OF MANAGERIAL ACCOUNTING CHAPTER ONE: OVEVIEW OF MANAGERIAL ACCOUNTING The Basic Objectives of Accounting Basic objective of accounting is to provide stakeholders with useful information about a business enterprise in order to

More information

Full file at

Full file at Chapter 02 Cost Concepts and Behavior True / False Questions 1. The cost of an item is the sacrifice made to acquire it. True False 2. An expense is an expired cost matched with revenues in a specific

More information

Full file at

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

More information

DEFINITIONS AND CONCEPTS

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

More information

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

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

More information

Intermediate Management Accounting Primer

Intermediate Management Accounting Primer Intermediate Management Accounting Chartered Professional Accountants of Canada, CPA Canada, CPA are trademarks and/or certification marks of the Chartered Professional Accountants of Canada. 2019, Chartered

More information

Online Course Manual By Craig Pence. Module 12

Online Course Manual By Craig Pence. Module 12 Online Course Manual By Craig Pence Copyright Notice. Each module of the course manual may be viewed online, saved to disk, or printed (each is composed of 10 to 15 printed pages of text) by students enrolled

More information

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

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

More information

Managerial Accounting: Making Decisions and Motivating Performance (Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes

Managerial Accounting: Making Decisions and Motivating Performance (Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes Managerial Accounting: Making Decisions and Motivating Performance (Datar/Rajan) Chapter 2 An Introduction to Cost Terms and Purposes Learning Objective 2-1 1) The cost incurred is: A) actual costs. B)

More information

2 Cost Concepts and Behavior

2 Cost Concepts and Behavior 2 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An expense is

More information

An Introduction to Cost Terms and Purposes

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

More information

Relevant Costs for Decision Making

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

More information

CHAPTER 5 ACTIVITY-BASED COSTING AND MANAGEMENT

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

More information

Chapter 1 Info Systems and Relevant info in Management Decision Making

Chapter 1 Info Systems and Relevant info in Management Decision Making Chapter 1 Info Systems and Relevant info in Management Decision Making Cost accounting: involves the process of tracking, recording, analyzing and determining the cost of an organization s project, process

More information

Lecture 2: Flow of resource costs

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,

More information

Acct 1B Week 8, Chap 7

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

More information

COMM 294 MIDTERM REVIEW SESSION QUESTIONS BY LINH VO

COMM 294 MIDTERM REVIEW SESSION QUESTIONS BY LINH VO COMM 294 MIDTERM REVIEW SESSION QUESTIONS BY LINH VO TABLE OF CONTENT I. Introduction II. Cost terms, concepts, classification and Cost Behaviour (Chap. 2, 3) III. Job-order Costing (Chap. 5) --------------BREAK--------------

More information

Chapter 2 Cost Terms, Concepts, and Classifications

Chapter 2 Cost Terms, Concepts, and Classifications Multiple Choice Questions 16. Indirect labor is a part of: A) Prime cost. B) Conversion cost. C) Period cost. D) Nonmanufacturing cost. Answer: B Level: Medium LO: 1,2 Source: CPA, adapted 17. The cost

More information

Managerial Accounting 10th Edition by Crosson and Needles Solutions Manual

Managerial Accounting 10th Edition by Crosson and Needles Solutions Manual Managerial Accounting 10th Edition by Crosson and Needles Solutions Manual Discussion Questions DQ1. DQ2. DQ3. The accounting concept of cost measurement focuses on determining the amount of the cost.

More information

Introduction to Cost Accounting. Samir K Mahajan

Introduction to Cost Accounting. Samir K Mahajan Introduction to Cost Accounting Samir K Mahajan MEANING OF COST, COSTING AND COS ACCOUNTING Cost is amount of resources given up in exchange for some goods and services. The resources given up are expressed

More information

Chapter 02 Cost Concepts and Behavior

Chapter 02 Cost Concepts and Behavior Chapter 02 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An

More information

Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download:

Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download: Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download: https://testbankarea.com/download/introduction-managerial-accounting- 7th-edition-brewer-garrison-noreen-test-bank/

More information

Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download:

Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download: Introduction to Managerial Accounting 7th Edition Brewer Garrison Noreen Test Bank. Download: https://testbankarea.com/download/introduction-managerial-accounting- 7th-edition-brewer-garrison-noreen-test-bank/

More information

Chapter 02 Cost Concepts and Behavior

Chapter 02 Cost Concepts and Behavior Chapter 02 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An

More information

Introduction to Cost Accounting. Samir K Mahajan

Introduction to Cost Accounting. Samir K Mahajan Introduction to Cost Accounting Samir K Mahajan MEANING OF COST, COSTING AND COS ACCOUNTING Cost is amount of resources given up in exchange for some goods and services. The resources given up are expressed

More information

CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS

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,

More information

2 Cost Concepts and Behavior

2 Cost Concepts and Behavior 2 Cost Concepts and Behavior Solutions to Review Questions 2-1. Cost is a more general term that refers to a sacrifice of resources and may be either an opportunity cost or an outlay cost. An expense is

More information

Chapter 3 Systems Design: Job-Order Costing

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

More information

Full file at https://fratstock.eu

Full file at https://fratstock.eu Chapter 02 Managerial Accounting and Cost Concepts True / False Questions 1. Selling costs can be either direct or indirect costs. True False 2. A direct cost is a cost that cannot be easily traced to

More information

CONTRACTOR COST ACCOUNTING

CONTRACTOR COST ACCOUNTING CONTRACTOR COST ACCOUNTING PURPOSE AND SCOPE This teaching note explains certain key concepts of cost or managerial accounting, describes the types of cost accounting systems, and how the systems are used

More information

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 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

More information

CPA Mock Evaluation Management Accounting Module (Core 2) Page 1

CPA Mock Evaluation Management Accounting Module (Core 2) Page 1 CPA Mock Evaluation Management Accounting Module (Core 2) Page 1 Overview The Core 1 and 2 examinations are a mix of objective format and case questions. The maximum length for an individual case will

More information

Introduction to Cost Accounting. Samir K Mahajan

Introduction to Cost Accounting. Samir K Mahajan Introduction to Cost Accounting Samir K Mahajan MEANING OF COST, COSTING AND COS ACCOUNTING Cost is amount of resources given up in exchange for some goods and services. The resources given up are money

More information

Chapter 02 - Cost Concepts and Behavior Solution manual for Fundamentals of Cost Accounting 4th by Lanen Anderson Maher

Chapter 02 - Cost Concepts and Behavior Solution manual for Fundamentals of Cost Accounting 4th by Lanen Anderson Maher Solution manual for Fundamentals of Cost Accounting 4th by Lanen Anderson Maher Link full download: http://testbankair.com/download/solution-manual-for-fundamentals-of-costaccounting-4th-by-lanen-anderson-maher/

More information

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

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

More information

CHAPTER 16 Solutions COSTING SYSTEMS: JOB ORDER COSTING

CHAPTER 16 Solutions COSTING SYSTEMS: JOB ORDER COSTING Managerial Accounting 10th Edition Crosson Solutions Manual Full Download: http://testbanklive.com/download/managerial-accounting-10th-edition-crosson-solutions-manual/ CHAPTER 16 Solutions COSTING SYSTEMS:

More information

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

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

More information

Chapter 4 Activity-based Costing Systems

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:

More information

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 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

More information

Activity-Based Costing (ABC) & Activity-Based Management (ABM)

Activity-Based Costing (ABC) & Activity-Based Management (ABM) Chapter 5: Activity-Based Costing (ABC) & Activity-Based Management (ABM) Horngren 13e 5-1 A SIMPLE COSTING SYSTEM 5-2 AN ACTIVITY-BASED COSTING SYSTEM 5-3 ABC s 7 Steps Step 1: Identify the products that

More information

Full file at Chapter 02 - Basic Cost Management Concepts

Full file at   Chapter 02 - Basic Cost Management Concepts CHAPTER 2 BASIC COST MANAGEMENT CONCEPTS Learning Objectives 1. Explain what is meant by the word cost. 2. Distinguish among product costs, period costs, and expenses. 3. Describe the role of costs in

More information

Chapter 5 Job Costing

Chapter 5 Job Costing Chapter 5: Job Costing 203 Chapter 5 Job Costing LEARNING OBJECTIVES Chapter 5 addresses the following questions: LO1 LO2 LO3 LO4 LO5 LO6 Explain product costs and cost flows through the manufacturing

More information

Exemplar for Internal Achievement Standard. Accounting Level 3

Exemplar for Internal Achievement Standard. Accounting Level 3 Exemplar for Internal Achievement Standard Accounting Level 3 This exemplar supports assessment against: Achievement Standard 91409 Demonstrate understanding of a job cost subsystem for an entity An annotated

More information

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

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?

More information

Managerial Accounting Chapter 5

Managerial Accounting Chapter 5 Managerial Accounting Chapter 5 It s really Economics Except we analyze entries to do the calculations Cost Behavior Analysis The study of how specific costs respond to changes in the level of business

More information

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 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

More information

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

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?

More information

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 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

More information

INTRODUCTION. Professional Accounting Supplementary School (PASS) Page 1

INTRODUCTION. Professional Accounting Supplementary School (PASS) Page 1 INTRODUCTION Under the new CPA certification program, management accounting has become very important on the CFE and it will therefore be critical for students to have a strong grounding in this area.

More information

Gatsby s Accounting System and Policies Designed by Regina Rexrode Copyright - Armond Dalton

Gatsby s Accounting System and Policies Designed by Regina Rexrode Copyright - Armond Dalton Gatsby s Accounting System and Policies a Images used on the front cover and throughout this book were obtained under license from Shutterstock.com 2017, by Armond Dalton Publishers, Inc. All rights reserved.

More information

MULTIPLE-CHOICE QUESTIONS

MULTIPLE-CHOICE QUESTIONS 13. Nonvalue-added activities are unnecessary activities or activities that are necessary but inefficient and improvable. An example is moving goods. Nonvalue-added costs are those costs caused by nonvalue-added

More information

Breaking Down Break-Even

Breaking Down Break-Even Breaking Down Did you ever run a lemonade stand in your neighborhood when you were a kid? If you did, chances are that your parents provided you with all the materials you needed lemons or lemonade, sugar,

More information

COST COST OBJECT. Cost centre. Profit centre. Investment centre

COST COST OBJECT. Cost centre. Profit centre. Investment centre COST The amount of money or property paid for a good or service. Cost is an expense for both personal and business assets. If a cost is for a business expense, it may be tax deductible. A cost may be paid

More information

B. Com (Hons.) III Semester Paper Title: Cost Accounting Paper Code: AS-2620

B. Com (Hons.) III Semester Paper Title: Cost Accounting Paper Code: AS-2620 B. Com (Hons.) III Semester Paper Title: Cost Accounting Paper Code: AS-26 * Prepared by: Nilmani Tripathi, Assistant Professor, Department of Commerce, GGV Answer 1. Short answer question 1. Eight example

More information

Traditional Costing Systems

Traditional Costing Systems 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

More information

Full file at

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

More information

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 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

More information

Financial Facts Worksheet Inventory

Financial Facts Worksheet Inventory Name: Financial Facts Worksheet Inventory You will use the Inventory Financial Facts Worksheet to accumulate notes and information as you research the types of production expenses you expect to have in

More information

Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing

Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing Test Bank For Cost Accounting A Managerial Emphasis Fifth Canadian 5th Edition By Horngren Foster Datar And Gowing Link full download: https://digitalcontentmarket.org/download/test-bank-for-cost-accounting-amanagerial-emphasis-fifth-canadian-5th-edition-by-horngren-foster-datar-andgowing/

More information

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

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

More information

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 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

More information

Breaking Down Break-Even

Breaking Down Break-Even Xxxxx Xxxxxx Xxxxxxxxxx Xxx xx xxxxxxxiness stay in business? One way is by preparing and Did you using ever run a well-thought-out a lemonade stand budget. in your neighborhood when Believe you it were

More information

CONTROL. Chapter 3-7. Cost of Quality Institute of Industrial Engineers 3-7-1

CONTROL. Chapter 3-7. Cost of Quality Institute of Industrial Engineers 3-7-1 Chapter 3-7 Cost of Quality 2011 Institute of Industrial Engineers 3-7-1 Cost of Quality Topics Introduction Understanding Quality Cost Categories and Models Hidden Costs Benefits of a Cost of Quality

More information

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) All costs incurred in a merchandising firm are considered to be period costs. A) True B) False

More information

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 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

More information

1 Cost Accounting - Basic Concepts & Treatment of Special Items

1 Cost Accounting - Basic Concepts & Treatment of Special Items 1 Cost Accounting - Basic Concepts & Treatment of Special Items This Chapter Includes: Cost Accounting : Necessity & Importance; Cost Department, Costing System, Design of Forms & Records, Treatment of:

More information

17(2) Job Order Costing. chapter OPENING COMMENTS

17(2) Job Order Costing. chapter OPENING COMMENTS ing chapter 17(2) OPENING COMMENTS Chapter 17(2) introduces students to managerial job order cost systems. Students will be exposed to the terminology used to describe costs related to manufacturing. The

More information

Link full download Test bank:

Link full download Test bank: Solution manual for Fundamentals of Cost Accounting 4th by William N. Lanen, Shannon Anderson, Michael W Maher Link full download Solutions: http://testbankcollection.com/download/solutionmanual-for-fundamentals-of-cost-accounting-4th-bylanen-anderson-maher/

More information

Management Accounting

Management Accounting Management Accounting Suggested Solutions to Practice Questions Professional, Practical, Proven www.accountingtechniciansireland.ie Table of Contents Part 1:... 2 Part 2:... 8 Part 3:... 14 Part 4:...

More information

Chapter 5: Activity-Based Costing

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:

More information

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

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

More information

LECTURE 10 DECISION MAKING

LECTURE 10 DECISION MAKING LECTURE 10 DECISION MAKING INTRODUCTION TO DECISION MAKING Characteristics of Decision Information Information accumulated for decision-making will include many characteristics, but also some that are

More information

Full file at

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

More information

MANAGERIAL ACCOUNTING. 2 nd topic COST CLASSIFICATION

MANAGERIAL ACCOUNTING. 2 nd topic COST CLASSIFICATION MANAGERIAL ACCOUNTING 2 nd topic COST CLASSIFICATION Structureofthelecture2 2.1 Definition of cost and related terms 2.2 Types of cost classification 2.3 Identification of cost classification 2.4 Reporting

More information

MBP1133 Managerial Accounting Prepared by Dr Khairul Anuar

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

More information

a. Factory supplies used in the Morganton, North Carolina, engine parts plant:

a. Factory supplies used in the Morganton, North Carolina, engine parts plant: Name Chapter 18 691 EXERCISE 18-1 a. Controls for flight deck: b. Aircraft engines: c. Depreciation of welding equipment: d. Welding machinery lubricants: e. Salary of test pilot: f. Steel used in landing

More information

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? 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

More information

Department for Medicaid Services (DMS) HCBS Case Management Cost and Wage Survey

Department for Medicaid Services (DMS) HCBS Case Management Cost and Wage Survey Department for Medicaid Services (DMS) HCBS Case Management Cost and Wage Survey Case Management Survey Instructions February 25, 2019 Survey Due Date: March 29, 2019 Submit completed survey to: HCBSRateStudy@navigant.com

More information

5-54 Volume-based Costing Versus ABC

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

More information

Cost concepts for decision making. Management Accounting Fundamentals. Part 1. Topic 9.1

Cost concepts for decision making. Management Accounting Fundamentals. Part 1. Topic 9.1 Management Accounting Fundamentals Module 9 elevant costs for decision making and inventory management Lectures and handouts by: Shirley Mauger, MBA, HB Comm, CGA Part 1 2 3 N/A 3 4 5 6 7 8 9 10 Module

More information

2.1 Identify and distinguish between two manufacturing cost classification systems: direct and indirect, prime and conversion.

2.1 Identify and distinguish between two manufacturing cost classification systems: direct and indirect, prime and conversion. Chapter 2 An Introduction to Cost Terms and Purposes 2.1 Identify and distinguish between two manufacturing cost classification systems: direct and indirect, prime and conversion. 1) "Cost" is defined

More information

Activity Based Costing Learning Objectives

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

More information

1. III. COST BEHAVIOR

1. III. COST BEHAVIOR Chapter 3 Cost Behavior Page 1 1. III. COST BEHAVIOR In this chapter we discuss the manner in which costs behave. We will discuss fixed and variable costs. As part of this discussion, we will discuss learning

More information

A Brief Introduction to Cost Accounting

A Brief Introduction to Cost Accounting Harvard Business School 9-192-068 Rev. May 1, 1993 A Brief Introduction to Cost Accounting Organizations and managers are almost always interested in and concerned about costs. Control of past, present,

More information