Cost Management

ACCOUNTING AND CONTROL

HANSEN & MOWEN

18-1
 18
Activity Resource Usage Model And
Tactical Decision Making

18-2
• Incluye en el costo del producto todos los costos de la función
productiva, independientemente de su comportamiento fijo o
variable.
Es el más utilizado para tomar decisiones en empresas Latino
Americanas

• Surge en 1930…. los costos fijos de producción se relacionan con

la capacidad instalada, y ésta, a sus vez, esta en función de un
período determinado, pero jamás al volúmen de producción.

Puede verse como una aplicación del concepto de análisis marginal

 Materiales
Costo del
Costo del MOD
Producto
producto GIF variables

GIF f i j o

Gastos de Costo del

Costo del Administración Período
Período y Ventas
Measuring Profit 4
Absorption-Costing
Lasersave, Inc., a company that recycles used toner
cartridges for laser printers. During August the firm
manufactured 1,000 cartridges at the following costs:

Direct materials $ 5,000 = 5

Direct labor 15,000 15
Variable overhead 3,000= 3
Fixed overhead 20,000 =20
Total manufacturing cost $43,000 = 43

During August, these cartridges were sold at $60 each.

Variable marketing cost was $1.25 per unit. Fixed
expenses were $12,000.

19-5
18-5
Pág..834
Pág..834
Measuring Profit 4

Absorption-Costing
Absorption-CostingIncome
IncomeStatement
Statementfor
forLasersave,
Lasersave,
Inc.,
Inc.,for
forAugust
August

19-6
Measuring Profit 4

Absorption-Costing
Absorption-CostingIncome
IncomeStatement
Statementfor
forLasersave,
Lasersave,
Inc.,
Inc.,for
forSeptember
September

*Direct materials ($5 x 1,250) $ 6,250

Direct labor ($15 x 1,250) 18,750
Variable overhead ($3 x 1,250) 3,750
Fixed overhead 20,000
Total manufacturing overhead $48,750
Add: Beginning inventory 0
Less: Ending inventory (9,750)
Cost of goods sold $39,000

GIF $16 vs. $20

19-7
Measuring Profit 4

Variable-Costing
Variable-CostingIncome
IncomeStatements
Statements for
for
Lasersave,
Lasersave,Inc.
Inc.

*Direct materials $ 5,000

Direct labor 15,000
Variable overhead 3,000
Total variable manufacturing expenses $23,000
Add: Variable marketing expenses 1,250
Total variable expenses $24,250

19-8
Measuring Profit 4
Comparative
ComparativeIncome
IncomeStatements
Statementsfor
forLasersave,
Lasersave,Inc.
Inc. for
forthe
the
Month
Monthof
ofOctober
October

19-9
Measuring Profit 4
Comparative
ComparativeIncome
IncomeStatements
Statementsfor
forLasersave,
Lasersave,Inc.
Inc. for
forthe
the
Month
Monthof
ofOctober
October

Producción
Producción1250
1250yyse
sevenden
venden1300
1300

19-10
Tactical Decision Making 1
Decision
DecisionModel:
Model: Tactical
TacticalDecision-Making
Decision-MakingProcess
Process
Example
Step 1 What to do with small, ill-shaped apples.

Step 2 1. Sell to pig farmers.

2. Sell bagged apples (feasible).
3. Make applesauce (feasible).
4. Make pie filling.
5. Continue dumping.

Continued
Continued
18-11
Tactical Decision Making 1
Step 3 Bagged alternative:
a. Revenue $1.30 per bag
($0.26 per pound)
b. Cost $0.05 per pound
Applesauce alternative:
a. Revenue: $0.78 per can
($0.65 per pound)
b. Cost: $0.40 per pound

Step 4
Bagged
Applesauce
Revenue $0.26 $0.65
Cost 0.05 0.40
Net benefit $0.21 $0.25
Bagged: Differentiation
Continued Applesauce: Forward integration
Continued
18-12
Tactical Decision Making 1
Step 5 Select bagging alternative because it is
profitable and is more consistent with
strategic positioning desired by
producer.

18-13
Relevant Costs and Revenues 2

Relevant
Relevantcosts
costsarearefuture
futurecosts
coststhat
thatdiffer
differ
across
acrossalternatives.
alternatives. AAcost
costmust
mustnotnotonly
onlybebe
aafuture
futurecost
costbut
butmust
mustalso
alsodiffer
differbetween
between
alternatives.
alternatives.

18-14
Relevant Costs and Revenues 2

Sunk costs are past costs.

Example: The original cost of
a building is a
sunk cost when
you are trying to
decide whether or
not to sell the
business five
years later.

18-15
Relevancy, Cost Behavior, and the Activity
Resource Usage Model 3

Flexible
Flexible resources
resources cancanbe
beeasily
easily
purchased
purchasedininthe
theamount
amount needed
needed
and
andat
atthe
thetime
timeofofuse…
use… like
like
electricity.
electricity.

18-16
Relevancy, Cost Behavior, and the Activity
Resource Usage Model 3

Flexible
FlexibleResources
Resources

a. Demand Changes Relevant

b. Demand Constant Not Relevant

18-17
Relevancy, Cost Behavior, and the Activity
Resource Usage Model 3

Committed
Committedresources
resourcesare
are
purchased
purchasedbefore
beforethey
theyare
are
used,
used,such
suchas
assalaried
salaried
employees.
employees.

18-18
Relevancy, Cost Behavior, and the Activity
Resource Usage Model 3

A company has five manufacturing

engineers who supply a capacity of
10,000 engineering hours (2,000
hours each). The cost of this activity
capacity is $250,000, or $25 per
hour. The firm expects to use 9,000
hours. If the firm decides to reject a
special order requiring 500 hours,
the cost of engineering would be
irrelevant.

18-19
Relevancy, Cost Behavior, and the Activity
Resource Usage Model 3

The firm can purchase a

component that will drop the
demand from engineering hours
from 9,000 to 7,000. Since
engineering activity capacity is
acquired in chunks of 2,000, the
company can lay off one
engineer or reassign the
engineer to another plant.

18-20
Illustrative Examples of Tactical
Decision Making 4

 Make or Buy
 Keep or Drop
 Special Order
 Sell or Process Further

Important:
Important:Short-term
Short-termPerspective
Perspective

18-21
Illustrative Examples of Tactical
Decision Making 4
Make-or-Buy Decisions
Talmage Company produces a
mechanical part used in one of its
engines. (Talmage produces engines for
snowblowers.) An outside supplier has
offered to sell a part (Part 34B) for $4.75.
The company normally produces 100,000
units of the part each year.

18-22
Illustrative Examples of Tactical
Decision Making 4
Functional-Based
Functional-BasedMake-or-Buy
Make-or-Buy
Analysis:
Analysis: Talmage
TalmageCompany
Company

Make the part!

18-23
Illustrative Examples of Tactical
Decision Making 4
ABC
ABCSegmented
SegmentedIncome
IncomeStatement
Statement

DROP? 18-24
Illustrative Examples of Tactical
Decision Making 4
ABC
ABCKeep-or-Drop
Keep-or-DropAnalysis
Analysis

Dropping the product saves $45,000!

18-25
Illustrative Examples of Tactical
Decision Making 4
Special-Order Cost
Polarcreme, Inc., an ice-cream
company, is operating at 80 percent
of its 20 million half-gallon capacity.
A distributor from another
geographically area offered to buy 2
million units of premium ice cream at
$1.75 per unit. They have agreed to
provide their own label and pay
transportation costs. This sale would
avoid a sales commission.
Precio normal unitario $2.50

18-26
 Illustrative Examples of Tactical
Decision Making 4
Special-Order Cost
Variable costs:
Dairy ingredients $0.70
Sugar 0.10
Flavoring 0.15
Direct labor 0.25
Packaging 0.20
Commissions 0.02
Distribution 0.03
Other 0.05
Which costs Total unit-level costs $1.50
$1.45
are irrelevant?

18-27
Illustrative Examples of Tactical
Decision Making 4

Special-Order Cost
The nonunit-level variable costs will also be
incurred, producing a total increment cost of
$304,000 or $0.152 per unit (for an order of
2 million units). Revenue per unit of $1.75,
less the unit-level variable cost ($1.45) plus
the nonunit-level variable cost ($0.152)
provides a net benefit of $0.148 per unit.
Thus Polarcreme’s profit would increase by
$296,000 ($0.148 x 2,000,000).

18-28
Illustrative Examples of Tactical
Decision Making 4
Sell or Process Further
Joint products have common processes and costs of
production up to a split-off point.
The point of separation is called the split-off point.

Assume that Delrio can sell hot sauce for $1.50 per
bottle. Also, assume that additional processing costs
amount to $1,000. The total revenue at split-off for
Grade A tomatoes are $400 ($0.40 x 1,000 pounds). If
the Grade A tomatoes are processed into hot sauce, the
total revenues are $1,500 ($1.50 per bottle).

18-29
Illustrative Examples of Tactical
Decision Making 4
Sell or Process Further
Differential Amount

Sell Process Further to Process Further

Revenues $400 $1,500 $1,100
Processing costs ---- 1,000 1,000
Total $400 $ 500 $ 100

Decision: Further Process

18-30
 End of
Chapter 18

18-31