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Chapter Five: Activity-Based Costing (ABC) and Activity-Based Management (ABM)
Chapter Five: Activity-Based Costing (ABC) and Activity-Based Management (ABM)
Learning Objectives
Learning Objectives
(continued)
Volume-Based Costing
ABC Terms
• An activity is a specific task or action of work done, such
as production set-up
Cost Assignment
The two-stage cost assignment approach for indirect
(support) costs: resource costs such as factory
overhead are assigned to activity cost pools and then to
cost objects (jobs, clients, products, patients, etc.)
Activity-Based Costing
Activity Analysis
Benefits Limitations
Better
Better profitability
profitability measures
measures Some
Some costs
costs may
may require
require
due
due to
to more
more accurate
accurate costs
costs allocations
allocations to
to departments
departments
Identification
Identification ofof value-added
value-added and
and products
products based
based on
on
vs.
vs. non-value-added
non-value-added activities
activities arbitrary
arbitrary volume
volume measures
measures
and
and associated
associated costs
costs Some
Some costs
costs that
that can
can be
be
Information
Information forfor process
process identified
identified with
with specific
specific
improvement
improvement products
products are
are omitted
omitted
Improved
Improved cost
cost estimation
estimation Expensive
Expensive and
and time-
time-
consuming
consuming to to develop
develop and
and
Helps
Helps identify
identify and
and control
control the
the
cost implement
implement
cost of
of unused
unused capacity
capacity
Possible
Possible managerial
managerial
resistance
resistance to
to ABC
ABC results
results
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies
2008
13
AW SZ
Therefore......
Blocher,Stout,Cokins,Chen, Cost Management 4e ©The McGraw-Hill Companies
2008
15
AW SZ
Unit selling price $400 $200.00
Unit product cost
Direct materials and labor $200 $80
Factory overhead 100 75
Cost per unit 300 155.00
Unit margin $100 $45.00
AW SZ Total
AW SZ
Unit selling price $400 $200.00
Unit product cost
Direct materials and labor $200 $80
Factory overhead:
Engineering $10 $3.75
Setups 40 5.00
Machine running 100 50.00
Packing 5 155 2.50 61.25
Cost per unit 355 141.25
Unit margin $45 $58.75
ABC/M Tools
Some key ABC/M tools:
High-value-added activities:
Low-value-added activities:
Chapter Summary