Activity

Based
Costing
Prepared by
Dahlia Sari | Evony Silvino | Cut Hasna | Adela Pravita | Celine Cecilia

Tim E-Learning Departemen Akuntansi FEB UI

 Undercosting & Overcosting
Budi, Mawar, And Alex order separate items for lunch

Budi Mawar Alex

Ice Tea Soda Apple Juice
Fried chicken + Fried Rice + Steak +
$10 $15 $50

If they average-cost their lunch: $75 ÷ 3 = $25

Budi and Mawar are overcosted

Alex is undercosted
Tim E-Learning Departemen Akuntansi FEB UI
 Simple Method:
Single Indirect-Cost Pool

Example: Snow White Corporation

Manufactures two types of mirror using Direct Labor Hours cost rate with
budgeted indirect cost $1,320,000

Units Direct Labor Indirect Cost

produced Hours Allocated
Vintage Mirror (VM) 30,000 140,000 140,000 x $3 = $420,000

Modern Mirror (MM) 300,000 300,000 300,000 x $3 = $900,000

Total 330,000 440,000 $1,320,000

Tim E-Learning Departemen Akuntansi FEB UI

 Simple Method:
Single Indirect-Cost Pool
Vintage Mirror Modern Mirror
Direct Materials $150,000 Direct Materials $1,200,000
Direct Labor 50,000 Direct Labor 800,000

Total Direct Costs $200,000 Total Direct Costs $2,000,0000

Indirect Cost Allocated 420,000 Indirect Cost Allocated 900,000

Total Cost $620,000 Total Cost $2,900,000

Direct cost/unit: $200,000 ÷ 30,000 = $6.67 Direct cost/unit: $2,000,000 ÷ 300,000 = $6.67

Total cost/unit: $620,000 ÷ 30,000 = $20.67 Total cost/unit: $2,900,000 ÷ 300,000 = $9.67

Tim E-Learning Departemen Akuntansi FEB UI

 Simple Method:
Single Indirect-Cost Pool

Vintage Mirror Modern Mirror

Revenue $670,000 Revenue $4,200,000

Total Costs 620,000 Total Costs 2,900,000

Operating Income $50,000 Operating Income $1,300,000

Margin% 7.46% Margin% 30.95%

Tim E-Learning Departemen Akuntansi FEB UI

 Single Indirect-Cost Pool
INDIRECT All Indirect Costs
04 COST POOL $1,320,000

INDIRECT COST 440,000 Direct

03 ALLOCATION BASE Labor Hours
Steps

$3 per
05 Direct
Labor Hour

01 COST OBJECT 06 Indirect Costs

07
Direct Costs

02 DIRECT COSTS Direct Direct

Material Labor
Tim E-Learning Departemen Akuntansi FEB UI
 Activity Based Costing

Activity based costing refines a costing system by identifying individual

activities as the fundamental cost objects

Follow a two-stage procedure to assign overhead costs to products:

01 Identify Major Activities from Overall Process

Identify Cost Drivers to Each Activity and Allocate

02 Overhead to The Products

Tim E-Learning Departemen Akuntansi FEB UI

 Activity Based Costing
Snow White Corp.

1. Operate machines to manufacture mirrors

Identify Major 2. Set up molding machine

01 Activities
3. Design product

4. Plant and Machine Maintenance

Tim E-Learning Departemen Akuntansi FEB UI

 Activity Based Costing

Measuring cost allocation bases of different

Identify Cost activities used by different products.
02 Driver to Each
Cost allocation based on managerial judgement,
Activity
can also obtained from cost hierarchies
categorization.

Tim E-Learning Departemen Akuntansi FEB UI

 Cost Hierarchies
A cost hierarchy is a categorization of costs into different cost pools. Also considered
as cost drivers bases. ABC systems commonly use 4 part cost hierarchy:

1. Unit Level Cost

Performed each time a unit is produced.
Example: processing units on machines, processing units by hand

2. Batch Level Cost Performed each time a batch of products is produced

Example: setups, inspection, production, material handling.

3. Product-sustaining Cost
Performed as needed to support various products produced by
a company. Example: design product, testing product, marketing

4. Facility-sustaining Cost
Sustain a factory’s general manufacturing process
Example: plant management, security, property taxes, maintenance.
Tim E-Learning Departemen Akuntansi FEB UI
 Hierarchy of Activities
Level Activities Activity Measure

Unit Level Processing units on machines Machine hours

Processing units by hand Direct labor hours
Consuming factory supplies Unit produced

Batch Level Processing purchase orders Purchase orders processed

Processing production orders Production orders processed
Setting up equipment Number of setups
Handling materials Pounds of material handled

Product Level Testing new products Hours of testing time

Administering parts inventories Number of part types
Designing products Hours of design time

Facility Level General factory administration Direct labor hours

Plant building and grounds Direct labor hours
Tim E-Learning Departemen Akuntansi FEB UI
 ABC and Snow White Illustrated
Steps

INDIRECT Machining Setup Design Maintenance

04
COST POOL $320,000 $360,000 $280,000 $360,000

INDIRECT COST 100,000

03 220,000 100 production 2,000 design
ALLOCATION maintenance
machine hours run hours
BASE hours

$1.46/ $3,600/ $140/ $3.6/

machine production design maintenance
hour run hours hour

01 COST Indirect Costs

OBJECT
Direct Costs

02 DIRECT COSTS Direct Direct

Materials Labor
Tim E-Learning Departemen Akuntansi FEB UI
 ABC Method:
Multiple Indirect-Cost Pool

Activities (Hirarchies) Cost Hirarchies Vintage Mirror Modern Mirror Total

Machining Unit Level $29,091 $290,909

$320,000
($1,46 x 20,000) ($1,46 x 200,000)
Setup Batch Level $144,000 $216,000
$360,000
($3,600 x 40) ($3,600 x 60)
Design Product Sustaining Level $112,000 $168,000
$280,000
($140 x 800) ($140 x 1,200)
Maintenance Facility Level $36,000 $324,000
$360,000
($3.6 x 10,000) ($3.6 x 90,000)
TOTAL INDIRECT $321,091 $998,909 1,320,000

Tim E-Learning Departemen Akuntansi FEB UI

 ABC Method:
Multiple Indirect-Cost Pool
Vintage Mirror Modern Mirror
Direct Materials $150,000 Direct Materials $1,200,000
Direct Labor 50,000 Direct Labor 800,000

Total Direct Costs $200,000 Total Direct Costs $2,000,0000

Indirect Cost Allocated 321,091 Indirect Cost Allocated 998,909

Total Cost $521,091 Total Cost $2,998,909

Direct cost/unit: $200,000 ÷ 30,000 = $6.67 Direct cost/unit: $2,000,000 ÷ 300,000 = $6.67

Total cost/unit: $521,091 ÷ 30,000 = $17.37 Total cost/unit: $2,998,909 ÷ 300,000 = $9.996

Tim E-Learning Departemen Akuntansi FEB UI

 Simple Costing vs ABC Method
Simple Costing: ABC System Difference
Single Indirect-Cost Pool
Total direct costs $200,000 $200,000 $0
(Vintage Mirror)
Total direct costs $2,000,000 $2,000,000 $0
(Modern Mirror)
Indirect-cost pools Single indirect-cost pool allocated Machining (machine hours)
using direct manufacturing labor- Setup (production run)
hours Design (design hours)
Maintenance (maintenance hours)
Total indirect costs $420,000 $321,091 $98,909
(Vintage Mirror)
Total indirect costs $900,000 $998,909 $98,909
(Modern Mirror)
Total costs assigned to $620,000 $521,091 $98,909
Vintage Mirror
Cost/unit (Vintage Mirror) $20.67 $17.37 $3.3
Total cost assigned to $2,900,000 $2,998,909 $98,909
Modern Mirror
Cost/unit (Modern Mirror) $9.67 $9.996 $0.326

Tim E-Learning Departemen Akuntansi FEB UI

 Snow White:
Simple Costing vs ABC System
Profitability Analysis

Vintage Mirror Modern Vintage Modern

Mirror Mirror Mirror
Revenue $670,000 $4,200,000 Revenue $670,000 $4,200,000

Total Costs 620,000 2,900,000 Total Costs $521,091 $2,998,909

Operating $50,000 $1,300,000 Operating Income $178,909 $1,001,091

Income
Margin% 22.23% 28.60%
Margin% 7.46% 30.95%

Tim E-Learning Departemen Akuntansi FEB UI

Thank You

Tim E-Learning Departemen Akuntansi FEB UI