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Management Accounting Chapter 4
Management Accounting Chapter 4
PowerPoint Presentation by
Gail B. Wright
Professor Emeritus of Accounting
Bryant University
MANAGEMENT
ACCOUNTING
8th EDITION
BY
LEARNING OBJECTIVES
1. Discuss the importance of unit costs.
2. Describe functional-based costing
approaches.
3. Tell why functional-based costing
approaches may produce distorted costs.
Continued
2
LEARNING OBJECTIVES
4. Explain how an activity-based costing
system works for product costing.
5. Explain how the number of activity rates
can be reduced.
LO 1
LO 1
LO 1
LO 1
LO 1
UNIT COSTS
Affect
Bids submitted for special products
Development, introduction of new products
Decisions to
Make or buy a product or service
Accept or reject a special order
Keep or drop a product or service
LO 1
LO 2
PLANTWIDE RATE:
An Example
Budgeted overhead
$360,000
$360,000
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LO 2
Underapplied (overapplied)
(overapplied)
overhead is a variance that is
added
addedto
to (subtracted from) cost
of goods sold.
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LO 3
12
LO 3
CREATING DISTORTIONS
When a unit-level approach is used to
assign non-unit-level costs
(overhead), cost information can be
distorted.
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LO 4
14
LO 4
15
LO 4
16
LO 4
CLASSIFICATION OF ACTIVITIES
Product costs can be assigned at a)
unit level, 2) batch level, 3) product
level or 4) facility level.
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LO 5
18
LO 5
COMPARING SYSTEMS
Functional-based system
Overhead uses only unit-based activity drivers or
Splits overhead into fixed and variable and
allocates overhead based on the appropriate unitlevel rate
Activity-based system
Improves product costing by
Looking at cause & effect
Recognizing that some fixed overhead varies in
proportion to changes other than production volume
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CHAPTER 4
THE END
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