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    Activity-Based Costing and Management: Mcgraw-Hill/Irwin

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    Activity-Based Costing and Management: Mcgraw-Hill/Irwin

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    palak32
    32 views22 pages
    ppt

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    Chapter 05 s

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    ppt

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    Activity-Based Costing and Management: Mcgraw-Hill/Irwin

    Uploaded by

    palak32
    ppt

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    Download as PPT, PDF, TXT or read online from Scribd
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    Chapter 5

    Activity-Based Costing and Management

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    Learning Objective 1

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    Traditional, Volume-Based Product-Costing System


    Aerotech produces three complex printed circuit boards referred to as Mode I, Mode II, and Mode III. The following information is obtained from company records:

    Mode I Production: Units Runs 10,000 1 run of 10,000 units


    $

    Mode II 20,000 4 runs of 5,000 units


    $

    Mode III 4,000 10 runs of 400 units


    Mode I I I $ 20.00 40.00 66.00 $ 126.00

    Direct materials Direct labor Manufacturing overhead Total


    Direct materials Direct labor (hr/board) S etup time (hr/run) Machine time (hr/board) $

    Mode I 50.00 3 10 1

    Mode I 50.00 60.00 99.00 209.00


    $

    Mode I I 90.00 4 10 1.25

    Mode I I 90.00 80.00 132.00 302.00


    $

    Mode I I I 20.00 2 10 2

    Manufacturing overhead is determined as follows

    5-3

    Traditional, Volume-Based Product-Costing System


    Units produced Direct labor (hr/unit) Total hours Total hours required Mode I 10,000 3 30,000 Mode II 20,000 4 80,000 118,000 Mode III 4,000 2 8,000

    Budgeted manufacturing overhead Budgeted direct-labor hours


    Mode I Direct labor (hr/unit) Overhead rate per hour Overhead per unit $ $

    $3,894,000 118,000
    Mode II 3 33 99 $ $

    = $33 per hour

    Mode III 4 33 132 $ $ 2 33 66


    5-4

    Traditional, Volume-Based Product-Costing System


    With these product costs, Aerotech established target selling prices (Cost 125%).
    Direct materials Direct labor Manufacturing overhead Total $ Mode I Mode II Mode III 50.00 $ 90.00 $ 20.00 60.00 80.00 40.00 99.00 132.00 66.00 209.00 $ 302.00 $ 126.00

    Cost per unit Target selling price

    Mode I 209.00 261.25

    Mode II $ 302.00 377.50

    Mode III $ 126.00 157.50

    209.00 x 1.25
    5-5

    Learning Objective 2

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    Activity Based Costing System


    (ABC)
    ABC systems follow a two-stage procedure to assign overhead costs to products. Stage One
    Identify significant activities and assign overhead costs to each activity in proportion to resources used.

    Stage Two
    Identify cost drivers appropriate to each activity and allocate overhead to the products.

    5-7

    Learning Objective 4

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    STAGE ONE
    Various overhead costs related to machinery

    Maintenance Depreciation Computer Support

    Lubrication Electricity Calibration

    Activity cost pool

    Machinery Cost Pool


    Total budgeted cost = $1,212,600

    5-9

    STAGE TWO
    Calculate the pool rate
    Budgeted Machinery Costs = $1,212,600 Budgeted Machine Hours 43,000 = $28.20/hour

    Cost Assignment

    Mode I: $28.20 per hr. 1 hr. per unit $28.20 per unit

    Mode II: $28.20 per hr. 1.25 hr. per unit $35.25 per unit

    Mode III: $28.20 per hr. 2 hr. per unit $56.40 per unit
    5-10

    STAGE ONE
    Calculation of total setup cost
    Total budgeted setup cost $20 per hour 10 hr. per setup $200 cost per setup 15 production runs $ 3,000 Total

    Activity cost pool

    Setup Cost Pool


    Total budgeted cost = $3,000

    5-11

    STAGE TWO
    Calculate the pool rate
    Budgeted Setup Costs Planned Production Runs = $3,000 15 runs = $200 per run

    Cost Assignment

    Mode I: (1 Run) $200 per run 10,000 units per run = $.02 per unit

    Mode II: (4 Runs) $200 per run 5,000 units per run = $.04 per unit

    Mode III: (10 Runs) $200 per run 400 units per run = $.50 per unit
    5-12

    STAGE ONE
    Various overhead costs related to engineering
    Engineering salaries Engineering supplies Engineering software Depreciation

    Activity cost pool

    Engineering Cost Pool


    Total budgeted cost = $700,000

    5-13

    STAGE TWO
    Allocate based on engineering transactions

    Engineering Cost Pool


    Total budgeted cost = $700,000

    Cost Assignment

    Mode I: 25% $700,000 10,000 units = $17.50 per unit

    Mode II: 45% $700,000 20,000 units = $15.75 per unit

    Mode III: 30% $700,000 4,000 units = $52.50 per unit


    5-14

    STAGE ONE
    Various overhead costs related to general operations
    Plant depr.
    Plant mgmt. Plant maint.

    Property taxes
    Insurance Security

    Activity cost pool

    Facility Cost Pool


    Total budgeted cost = $507,400

    5-15

    STAGE TWO
    Calculate the pool rate
    Budgeted Facilities Cost = $507,400 Budgeted Direct-Labor Hours 118,000 = $4.30/hour

    Cost Assignment

    Mode I: $4.30 per hr. 3 hr. per unit $12.90 per unit

    Mode II: $4.30 per hr. 4 hr. per unit $17.20 per unit

    Mode III: $4.30 per hr. 2 hr. per unit $8.60 per unit
    5-16

    Other Overhead Costs


    Re c e ivin g an d In s pe c t ion Cos t P ool
    Board Mode I Mode II Mode III Ove rh e ad $ 200,000 200,000 200,000 % 6% 24% 70% Un its 10,000 20,000 4,000 = Cos t/Un it = $ 1.20 = 2.40 = 35.00

    Mat e rial-Han dlin g Cos t P ool

    $14.82

    Board Mode I Mode II Mode III

    Ove rh e ad $ 600,000 600,000 600,000

    % 7% 30% 63%

    Un its 10,000 20,000 4,000

    = Cos t/Un it = $ 4.20 = 9.00 = 94.50

    Qu alit y-As s u ran c e Cos t P ool


    Board Mode I Mode II Mode III Ove rh e ad $ 421,000 421,000 421,000 % 20% 40% 40% Un its 10,000 20,000 4,000 = Cos t/Un it = $ 8.42 = 8.42 = 42.10

    P ac kagin g an d Sh ippin g Cos t P ool


    Board Mode I Mode II Mode III Ove rh e ad $ 250,000 250,000 250,000 % 4% 30% 66% Un its 10,000 20,000 4,000 = Cos t/Un it = $ 1.00 = 3.75 = 41.25
    5-17

    Product Cost from ABC


    These are the new product costs when Aerotech uses ABC.
    Mode I Direct materials $ 50.00 Direct labor 60.00 Machinery 28.20 Setup 0.02 Engineering 17.50 Facilities 12.90 Other 14.82 Total $ 183.44 Mode II $ 90.00 80.00 35.25 0.04 15.75 17.20 23.57 $ 261.81 Mode III $ 20.00 40.00 56.40 0.50 52.50 8.60 212.85 $ 390.85
    5-18

    Learning Objective 5

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    Distorted Product Costs


    Both original and ABC target selling prices are based on (Cost 125%).
    Tradition al cos tin g ABC cos tin g Origin al targe t s e llin g price ABC targe t s e llin g price Mode I $ 209.00 183.44 261.25 229.30 Mode II $ 302.00 261.81 377.50 327.26 Mode III $ 126.00 390.85 157.50 488.56

    The selling price of Mode I and II are reduced and the selling price for Mode III is increased.
    [$209.00 1.25] [$183.44 1.25]
    5-20

    Learning Objective 3, 6 11 can be found in the text book

    McGraw-Hill/Irwin

    Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.

    End of Chapter 5
    This is my kind of cost pool!

    5-22

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