Bài giảng Fundamentals of cost accounting - Chapter 10: Fundamentals of Cost Management

© 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.  Fundamentals ofCost ManagementChapter 10Learning ObjectivesLO 10-1 Describe how activity-based cost management can be used to improve operations.LO 10-2 Use the hierarchy of costs to manage costs.LO 10-3 Describe how the actions of customers and suppliers affect a firm’s costs.LO 10-4 Use activity-based costing methods to assess customer and supplier costs.LO 10-5 Distinguish between resources used and resources supplied.LO 10-6 Design cost management systems to assign capacity costs.LO 10-7 Describe how activities that influence quality affect costs and profitability.LO 10-8 Compare the costs of quality control to the costs of failing to control quality.Using Activity-Based Cost Management to Add ValueLO 10-1 Describe how activity-based cost management can be used to improve operations.Activity-based costing (ABC) is a system used to assign costs to products based on the products’ use of activities, which are the discrete tasks an organization undertakes to make or deliver the product.The value chain is the set of activities that transforms raw resources into products for customers. Activities in the value chain are the things that customers will pay for.Activity-based costing focuses on activities in allocating overhead costs to products.Activity-based management focuses on managing activities to reduce costs.LO 1 Using Activity-Based Cost Information to Improve Processes The first step in ABCM is activity analysis. We begin by analyzing the costs of key activities. Activity analysis has six steps:Identify what the customer wants or expects from the firm’s products or services, including key features, price, and quality.Chart, from start to finish, the company’s activities for completing the product.Develop activity-based costing data for each activity, based on the resources used in each activity.Classify all activities as value-added or non-value-added.Compare the costs of each activity with the value that customers assign to it. (The value of non-value-added activities would be zero.)Continuously improve the efficiency of all value-added activities. Eliminate or reduce non-value-added activities. LO 1 Using Cost HierarchiesLO 10-2 Use the hierarchy of costs to manage costs.Cost ExampleSuppliesLubricating oilMachine repairHierarchy LevelVolume relatedCost Driver ExampleDirect labor costMachine-hoursNumber of unitsSetup costsMaterial handlingShipping costsBatch relatedSetup hoursProduction runsNumber of shipmentsCompliance costsDesign andspecification costsProduct relatedNumber of productsGeneral plant costsPlant admin. costsFacility relatedDirect costsValue addedLO 2 Managing the Costs of Customersand SuppliersLO 10-3 Describe how the actions of customers and suppliers affect a firm’s costs.Customers affect our profitability by both their buying behavior and their effect on our costs. Information on customer profitability is important for managers, so they can make decisions that will improve firm performance. LO 3 Managing the Costs of Customersand Suppliers Customers (and suppliers) use resources. Some customers use more resources than others.Think about the last time you stood in line to purchase a ticket, check in for a flight, or make a transaction in a bank. Many people ahead of you are purchasing the same service (a ticket, a flight, or a deposit), but some take longer (sometimes much longer) to complete the transaction. The additional time those customers take adds cost to the company.LO 3 Using ABC Costing:Customers and SuppliersLO 10-4 Use activity-based costing methods to assess customer and supplier costs.Step 1: Identify the activities that consume resources.Step 2: Identify the cost driver associated with each activity.Step 3: Compute a cost rate per cost driver for each unit or transaction. Step 4: Assign costs to customers by multiplying the cost driver rate by the volume of cost driver units consumed by the activity or transaction that occurred.Use the same four-step ABC product costing process to assess customers and suppliers.LO 4 Cost of CustomersOperating Data – Red's LumberProcess Flow of he Delivery ServiceLO 4 Cost of CustomersStep 1: Identify the ActivitiesWhat activities consume resources for Red’s delivering service?Process Flow of the Delivery Service – Red's LumberLO 4 Cost of CustomersStep 2: Identify the Cost DriversLO 4 Cost of CustomersStep 3: Compute the Cost Driver RatesComputation of Cost Driver Rates – Red's LumberLO 4 Cost of CustomersStep 4: Assign Costs Using ABCCost Driver Information by Customer – Red's LumberLO 4 LO 4 Cost of CustomersStep 4: Assign Costs Using ABCEstimated Customer Delivery Costs – Red's LumberLO 4 Cost of CustomersStep 4: Assign Costs Using ABCLO 4 Determining the Cost of SuppliersThe analysis of customers cost also can be applied to suppliers.Annual Data on Lumber Deliveries – Red's LumberLO 4 Determining the Cost of SuppliersEffective Purchase Price of Lumber When Late Deliveries Are ConsideredRed's LumberLO 4 Using and Supplying ResourcesLO 10-5 Distinguish between resources used and resources supplied. Resources used: Cost driver rate multiplied by the cost driver volume Resources supplies: Expenditures or the amounts spent on a specific activity Unused capacity: Difference between resources used and resources suppliedLO 5 Using and Supplying ResourcesTraditional Income StatementLO 5 Using and Supplying ResourcesActivity-Based Income StatementRed's LumberYear 2LO 5 Computing the Cost of Unused CapacityLO 10-6 Design cost management systems to assign capacity costs. Actual activity: Actual volume for the period Theoretical capacity: Amount of production possible under ideal conditions with no time for maintenance, breakdowns, or absenteeism.LO 6 Computing the Cost of Unused Capacity Practical capacity: Amount of production possible assuming only the expected downtime for scheduled maintenance and normal breaks and vacations. Normal activity: Long-run expected volumeLO 6 Managing the Cost of QualityLO 10-7 Describe how activities that influence quality affect costs and profitability. Quality as defined by the customer Organization is managed to excel on all dimensionsLO 7 What Is Quality?LO 7 External View of Quality: Customer Expectations Tangible: – Performance – Taste – Functionality Intangible: – Customer service – Delivery timeLO 7 Internal View of Quality:Conformance to SpecificationsConformance to SpecificationsDegree to which a good or service meets specificationsLO 7 Cost of QualityLO 10-8 Compare the costs of quality control to the costs of failing to control quality. Prevention: Costs incurred to prevent defects in the products or services being produced – Materials inspection – Process control – Quality training – Machine inspection – Product design Appraisal: Costs incurred to detect individual units of products that do not conform to specifications – End-of-process sampling – Field testingLO 8 Cost of Quality Internal failure: Costs incurred when nonconforming products and services are detected before being delivered to customers. – Scrap – Rework – Reinspection/Retesting External failure: Costs incurred when nonconforming products and services are detected after being delivered to customers. – Warrant repairs – Product liability – Marketing costs – Lost salesLO 8 Cost of QualityLO 8 Trade-Off Between Conformance and Nonconformance CostsCost of Quality ReportLO 8 End of Chapter 10