Bài giảng Fundamentals of cost accounting - Chapter 9: Activity-Based Costing

© 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.  Activity-Based CostingChapter 9Learning ObjectivesLO 9-1 Understand the potential effects of using externally reported product costs for decision making.LO 9-2 Explain how a two-stage product costing system works.LO 9-3 Compare and contrast plantwide and department allocation methods.LO 9-4 Explain how activity-based costing and a two-stage product system are related.LO 9-5 Compute product costs using activity-based costing.LO 9-6 Compare activity-based product costing to traditional department product costing methods.LO 9-7 Demonstrate the flow of costs through accounts using activity-based costing.LO 9-8 Apply activity-based costing to marketing and administrative services.Product Costs and Decision MakingLO 9-1 Understand the potential effects of using externally reported product costs for decision making.Units producedDirect labor-hoursCosts: Direct materials Direct labor Manufacturing overhead (@ 120%)TotalCost per unit 10 2,000$ 40,000 72,000 86,400$198,400$ 19,840 30 3,000$ 36,000 78,000 93,600$207,600$ 6,920 40 5,000$ 76,000 150,000 180,000$406,000C-27sC-20sTotalGrange is considering dropping C-27s.LO 9-1The accountant estimated that overheadwill be $163,800.Manufacturing overhead: Utilities Supplies Training Supervision Machine depreciation Plant depreciation MiscellaneousTotal overhead$ 2,400 2,500 30,000 54,900 29,550 40,050 20,600$180,000$ 1,800 1,300 15,600 54,900 29,550 40,050 20,600$163,800OriginalC-20s onlyLO 9-1Product Costs and Decision MakingDirect materialsDirect laborManufacturing overheadTotal costs$ 76,000 150,000 180,000$406,000 $ 36,000 78,000 163,800$277,800OriginalC-20s onlyThe cost per unit for the C-20s willincrease from $6,920 to $9,260.LO 9-1Product Costs and Decision MakingThe Death SpiralThis is a process that begins byattempting to increase price tomeet reported product cost.This may result in demand foreven fewer units.LO 9-1Two-Stage Cost AllocationLO 9-2 Explain how a two-stage product costing system works.Allocate overhead costs to departments.Allocate department overhead coststo the products or services.LO 9-2Two-Stage Cost AllocationOverheadDirect laborhoursMachinehoursCostpoolCostallocation ruleIntermediatecost poolsDepartment ADepartment BLO 9-2Two-Stage Cost AllocationNumber of unitsMachine hours – AssemblyDirect materials Direct labor – Assembly Direct labor – PackagingTotal direct labor Total direct costOverhead costs: Assembly Packaging Total overheadTotal costs 100,000 6,000$1,500,000$ 750,000 990,000$1,740,000$3,240,000 40,000 30,000$2,400,000$ 600,000 360,000$ 960,000$3,360,000 140,000 36,000$3,900,000$1,350,000 1,350,000$2,700,000$6,600,000$1,620,000 810,000$2,430,000$9,030,000J25PJ40XTotalThird Quarter – Production and Cost DataThe cost system allocates manufacturing overheadto products based on direct labor costs.LO 9-2Two-Stage Cost AllocationUnits producedDirect materialDirect labor: Assembly Packaging Total direct laborDirect costApplied overhead (@ 90% of direct labor costs)100,000$ 15.00$ 7.50 9.90$ 17.40$ 32.40 15.66$ 48.06 40,000$ 60.00$ 15.00 9.00$ 24.00$ 84.00 21.60$105.60J25PJ40XThird Quarter – Unit Cost Report – One allocation rateLO 9-2Two-Stage Cost AllocationUnits producedDirect materialDirect labor: Assembly Packaging Total direct laborDirect costApplied overhead: Assembly @ $45/machine hour Packaging @ 60% of direct labor cost Total overheadUnit costs100,000$ 15.00$ 7.50 9.90$ 17.40$ 32.40$ 2.70 5.94$ 8.64$ 41.04 40,000$ 60.00$ 15.00 9.00$ 24.00$ 84.00$ 33.75 5.40$ 39.15$123.15J25PJ40XThird Quarter – Unit Cost Report –Two Stage AllocationLO 9-2Plantwide versusDepartment-Specific RatesLO 9-3 Compare and contrast plantwide and department allocation methods.All overhead costs are recorded in onecost pool and applied to products usingone overhead allocation rate.LO 9-3Overhead costs are traced to separatedepartments and applied to productsusing a department allocation rate.LO 9-3Plantwide versusDepartment-Specific RatesChoice of Allocation MethodsSimilar products usingsame resourcesPlantwideallocationMultiple products usingresources differentlyDepartmentallocationLO 9-3Activity-Based Costing (ABC)LO 9-4 Explain how activity-based costing and a two-stage product system are related.ABC is a costing method that first assigns coststo activities and then assigns them to productsbased on the products’ consumption of activities.Assign costs to activities.Assign costs to products basedon the use of each activityLO 9-4Activity-Based Costing (ABC)ActivitiesconsumeresourcesProductsconsumeactivitiesLO 9-4Developing Activity-Based CostsStep 1: Identify the activities that consume resources and assign costs to them.Step 2: Identify the cost driver(s) associated with each activity.Step 3: Compute a cost rate per cost driver unit or transaction. Step 4: Assign costs to products by multiplying the cost driver rate by the volume of cost driver units consumed by the product.LO 9-4Cost DriversCost drivers are factors that cause or “drive”an activity’s costs.Identified ActivitySetting up machinesHandling materialMachiningPackaging and shippingLO 9-4Identified Cost Driver ?Cost HierarchiesThis is the classification of cost drivers into generallevels of activity; volume, batch, product, and so on.Cost ExampleHierarchy LevelCost Driver ExampleLO 9-4Cost HierarchiesCost ExampleSuppliesLubricating oilMachine repairHierarchy LevelVolume relatedCost Driver ExampleDirect labor costsMachine hoursNumber of unitsLO 9-4This is the classification of cost drivers into generallevels of activity; volume, batch, product, and so on.Cost HierarchiesCost ExampleSuppliesLubricating oilMachine repairHierarchy LevelVolume relatedCost Driver ExampleDirect labor costMachine-hoursNumber of unitsSetup costsMaterial handlingShipping costsBatch relatedSetup hoursProduction runsNumber of shipmentsLO 9-4This is the classification of cost drivers into generallevels of activity; volume, batch, product, and so on.Cost HierarchiesCost 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 productsLO 9-4This is the classification of cost drivers into generallevels of activity; volume, batch, product, and so on.Cost HierarchiesThe cost hierarchy in any ABC system depends onthe cost category and its cost driver. 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 9-4Activity-Based Costing IllustratedLO 9-5 Compute product costs using activity-based costing.Number of unitsMachine hours – AssemblyDirect materials Direct labor – Assembly Direct labor – PackagingTotal direct labor Total direct costOverhead costs: Assembly Packaging Total overheadTotal costs 100,000 6,000$1,500,000$ 750,000 990,000$1,740,000$3,240,000 40,000 30,000$2,400,000$ 600,000 360,000$ 960,000$3,360,000 140,000 36,000$3,900,000$1,350,000 1,350,000$2,700,000$6,600,000$1,620,000 810,000$2,430,000$9,030,000J25PJ40XTotalThird Quarter – Production and Cost DataLO 9-5Activity-Based Costing IllustratedStep 1: Identify the ActivitiesPackaging DepartmentInspectionPackingShippingAssembly DepartmentSetting up machinesHandling materialProduct assemblyLO 9-5Activity-Based Costing IllustratedStep 2: Identify the Cost DriversAssembly building: Assembling Setting up machines Handling materialPackaging building: Inspecting and packing ShippingMachine-hoursSetup hoursProduction runsDirect labor hoursNo. of shipments 6,000 40 860,000 10030,000 400 4022,800 200J25PJ40XTotalCost Driver Volume36,000 440 4882,800 300ActivityCost DriverLO 9-5Activity-Based Costing IllustratedStep 3: Compute the Cost Driver RatesAssembly building: Assembling Setting up machines Handling materialTotal assembly overheadPackaging building: Inspecting and packing ShippingTotal packaging overheadTotal overhead$1,080,000 396,000 144,000$1,620,000$ 414,000 396,000$ 810,000$2,430,000÷ 36,000 machine hour =÷ 440 hours =÷ 48 runs =÷82,800 direct labor hr =÷ 300 shipments =$ 30/machine hour$ 900/setup hour$3,000/run$ 5/direct labor hour$ 1,320/shipmentBuilding and ActivityOverheadCostCost DriverVolumeCost DriverRateLO 9-5Activity-Based Costing IllustratedStep 4: Assign Costs Using ABCAssembly building: Assembling @ $30/machine hour Machine setup @ $900/setup hour Handling material @ $3,000/runPackaging building: Inspection and packaging @ $5/direct labor hour Shipping @ $1,320/ shipmentTotal ABC overhead$180,000 36,000 24,000 300,000 132,000$672,000$ 900,000 360,000 120,000 114,000 264,000$1,758,000J25PJ40XOverheadLO 9-5Cost Flow Diagram – ABC SystemManufacturingoverheadDirectcostsAssembly buildingPackaging buildingAssemblingSetupHandlingmaterialInspecting/packagingShippingJ25PJ40XDirectlyassignedMachinehoursSetuphoursRunsDirectLHShip-mentsLO 9-5Activity Based Costing – IllustratedDirect materialDirect labor: Assembly Packaging Total direct laborDirect costsOverhead: Assembly building: Assembling @ $30 per machine hour Machine setup @ $900 per setup hour Handling material @ $3,000 per run Package building: Inspecting and packing @ $5 per direct labor hour Shipping @ $1,320 per shipment Total ABC overheadTotal ABC costNumber of unitsUnit cost$1,500,000$ 750,000 990,000$1,740,000$3,240,000$ 180,000 36,000 24,000 300,000 132,000$ 672,000$3,912,000 100,000$ 39.12$2,400,000$ 600,000 360,000$ 960,000$3,360,000$ 900,000 360,000 120,000 114,000 264,000$1,758,000$5,118,000 40,000$ 127.95J25PJ40XLO 9-5Unit Costs ComparedLO 9-6 Compare activity-based product costing to traditional department product costing methods.Plantwide rateDepartment (building) rateActivity-based costing$48.06$41.04$39.12$105.60$123.15$127.95J25PJ40XComparison of Reported Unit Product CostsLO 9-6Cost Flows through AccountsLO 9-7 Demonstrate the flow of costs through accounts using activity-based costing.Let’s see ABC cost flow for the Assembly Department.It's T-account time!LO 9-7Direct Materials CostsMaterials Inventory1,500,0002,400,000Assembly WIP J25PDM 1,500,000Assembly WIP J40XDM 2,400,000LO 9-7Direct Labor CostsWages Payable750,000600,000Assembly WIP J25PDM 1,500,000DL 750,000Assembly WIP J40XDM 2,400,000DL 600,000LO 9-7Overhead CostsAssembly WIP J25PDM 1,500,000DL 750,000OH 240,000Assembly WIP J40XDM 2,400,000DL 600,000OH1,380,000Assembling180,000900,0001,080,000Setting Up 36,000360,000396,000Handling Material 24,000120,000144,000LO 9-7Transfer from Assembly to PackagingPackaging WIP J25P2,490,000Packaging WIP J40X4,380,000Assembly WIP J25P2,490,000DM 1,500,000DL 750,000OH 240,000Assembly WIP J40X4,380,000DM 2,400,000DL 600,000OH1,380,000LO 9-7ABC Costing in AdministrationLO 9-8 Apply activity-based costing to marketing and administrative services.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 the marketing or administration activity by multiplying the cost driver rate by the volume of cost driver units consumed for that activity.LO 9-8End of Chapter 9