Lecture Fundamentals of cost accounting (4th edition): Chapter 9 - Lanen, Anderson, Maher

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(BQ) Chapter 9: Activity-based costing. Chapters 7 and 8 described product costing systems. In the last 15 years or so, many companies have experimented with and implemented costing systems based on production processes rather than accounting systems. One such system is activity-based costing, or ABC, which aids managers in the decision making process. Chapter 9 describes activity-based costing.

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Nội dung Text: Lecture Fundamentals of cost accounting (4th edition): Chapter 9 - Lanen, Anderson, Maher

© 2014 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
ActivityBased Costing Chapter 9 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 McGrawHill/Irwin Copyright © 2014 by The McGrawHill Companies, Inc. All rights reserved.
Learning Objectives LO 9-1 Understand the potential effects of using externally reported product costs for decision making. LO 9-2 Explain how a two-stage product costing system works. LO 9-3 Compare and contrast plantwide and department allocation methods. LO 9-4 Explain how activity-based costing and a two-stage product system are related. LO 9-5 Compute product costs using activity-based costing. LO 9-6 Compare activity-based product costing to traditional department product costing methods. LO 9-7 Demonstrate the flow of costs through accounts using activity-based costing. LO 9-8 Apply activity-based costing to marketing and administrative services. 93
LO 9-1 Product Costs and Decision Making LO 9-1 Understand the potential effects of using externally reported product costs for decision making. C-27s C-20s Total Units produced 10 30 40 Direct labor-hours 2,000 3,000 5,000 Costs: Direct materials $ 40,000 $ 36,000 $ 76,000 Direct labor 72,000 78,000 150,000 Manufacturing overhead (@ 120%) 86,400 93,600 180,000 Total $198,400 $207,600 $406,000 Cost per unit $ 19,840 $ 6,920 Grange is considering dropping C-27s. 94
LO 9-1 Product Costs and Decision Making The accountant estimated that overhead will be $163,800. Original C-20s only Manufacturing overhead: Utilities $ 2,400 $ 1,800 Supplies 2,500 1,300 Training 30,000 15,600 Supervision 54,900 54,900 Machine depreciation 29,550 29,550 Plant depreciation 40,050 40,050 Miscellaneous 20,600 20,600 Total overhead $180,000 $163,800 95
LO 9-1 Product Costs and Decision Making Original C-20s only Direct materials $ 76,000 $ 36,000 Direct labor 150,000 78,000 Manufacturing overhead 180,000 163,800 Total costs $406,000 $277,800 The cost per unit for the C-20s will increase from $6,920 to $9,260. 96
LO 9-1 The Death Spiral This is a process that begins by attempting to increase price to meet reported product cost. This may result in demand for even fewer units. 97
LO 9-2 TwoStage Cost Allocation LO 9-2 Explain how a two-stage product costing system works. Allocate overhead costs to departments. Allocate department overhead costs to the products or services. 98
LO 9-2 TwoStage Cost Allocation Cost Overhead pool Intermediate Department A Department B cost pools Cost Direct labor Machine allocation rule hours hours 99
LO 9-2 TwoStage Cost Allocation Third Quarter – Production and Cost Data J25P J40X Total Number of units 100,000 40,000 140,000 Machine hours – Assembly 6,000 30,000 36,000 Direct materials $1,500,000 $2,400,000 $3,900,000 Direct labor – Assembly $ 750,000 $ 600,000 $1,350,000 Direct labor – Packaging 990,000 360,000 1,350,000 Total direct labor $1,740,000 $ 960,000 $2,700,000 Total direct cost $3,240,000 $3,360,000 $6,600,000 Overhead costs: Assembly $1,620,000 Packaging 810,000 Total overhead $2,430,000 Total costs $9,030,000 The cost system allocates manufacturing overhead to products based on direct labor costs. 910
LO 9-2 TwoStage Cost Allocation Third Quarter – Unit Cost Report – One allocation rate J25P J40X Units produced 100,000 40,000 Direct material $ 15.00 $ 60.00 Direct labor: Assembly $ 7.50 $ 15.00 Packaging 9.90 9.00 Total direct labor $ 17.40 $ 24.00 Direct cost $ 32.40 $ 84.00 Applied overhead (@ 90% of direct labor costs) 15.66 21.60 $ 48.06 $105.60 911
LO 9-2 TwoStage Cost Allocation Third Quarter – Unit Cost Report –Two Stage Allocation J25P J40X Units produced 100,000 40,000 Direct material $ 15.00 $ 60.00 Direct labor: Assembly $ 7.50 $ 15.00 Packaging 9.90 9.00 Total direct labor $ 17.40 $ 24.00 Direct cost $ 32.40 $ 84.00 Applied overhead: Assembly @ $45/machine hour $ 2.70 $ 33.75 Packaging @ 60% of direct labor cost 5.94 5.40 Total overhead $ 8.64 $ 39.15 Unit costs $ 41.04 $123.15 912
LO 9-3 Plantwide versus DepartmentSpecific Rates LO 9-3 Compare and contrast plantwide and department allocation methods. All overhead costs are recorded in one cost pool and applied to products using one overhead allocation rate. 913
LO 9-3 Plantwide versus DepartmentSpecific Rates Overhead costs are traced to separate departments and applied to products using a department allocation rate. 914
LO 9-3 Choice of Allocation Methods Similar products using Plantwide same resources allocation Multiple products using Department resources differently allocation 915
LO 9-4 ActivityBased Costing (ABC) LO 9-4 Explain how activity-based costing and a two-stage product system are related. ABC is a costing method that first assigns costs to activities and then assigns them to products based on the products’ consumption of activities. Assign costs to activities. Assign costs to products based on the use of each activity 916
LO 9-4 ActivityBased Costing (ABC) Products Activities consume consume activities resources 917
LO 9-4 Developing ActivityBased Costs Step 1: Identify the activities that consume resources and assign costs to them. Step 2: Identify the cost driver(s) associated with each activity. Step 3: Compute a cost rate per cost driver unit or transaction. Step 4: Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product. 918
LO 9-4 Cost Drivers Cost drivers are factors that cause or “drive” an activity’s costs. Identified Activity Identified Cost Driver Setting up machines Handling material Machining Packaging and shipping ? 919
LO 9-4 Cost Hierarchies This is the classification of cost drivers into general levels of activity; volume, batch, product, and so on. Hierarchy Level Cost Example Cost Driver Example 920