1) ABC identifies activities associated with overhead costs and assigns costs to each activity.
2) Costs are then allocated to products based on cost drivers for each activity that influence the costs.
3) For Aerotech, activities included machinery, setup, engineering, and facilities. Costs for each activity were assigned to products based on relevant cost drivers like machine hours or engineering transactions. This provided a more accurate allocation of overhead costs than traditional volume-based methods.
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
http://www.brightscholarships.com
Twitter @scholarshipskys
To understand the basic concepts of marginal cost and marginal costing.
To understand the difference between the Absorption costing and Marginal Costing.
To learn the practical applications of Marginal costing.
To understand Breakeven charts & Limitation
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
1.1 identify the type of accounting
1.2 difference between Cost Accounting , Cost Accountancy and Costing
1.3 understand the Management information needs
1.4 identify the objectives of cost accounting
1.5 difference between Cost Accounting Vs. Financial Accounting
1.6 identify the role of cost accountant
Process costing explained with examples free of cost .It is for students of managerial accounting ,read this to quickly go through process costing.
http://www.brightscholarships.com
Twitter @scholarshipskys
To understand the basic concepts of marginal cost and marginal costing.
To understand the difference between the Absorption costing and Marginal Costing.
To learn the practical applications of Marginal costing.
To understand Breakeven charts & Limitation
01.Understand the concept of ‘Overheads’.
02.Understand classification, allocation, apportionment and absorption of overheads.
03. Understand the Primary and Secondary Distribution of Overheads.
04. Understand the Traditional & Activity Based Costing methods
05. Identify the value added & non value added activity
Activity based costing is considered to be useful only for Manufacturing Organizations whereas reality is that it is equally usefull to Service providers
This Slideshare presentation is a partial preview of the full business document. To view and download the full document, please go here
http://flevy.com/browse/business-document/activity-based-costing-198
Activity Based Costing (ABC) analysis is a methodology for assigning costs to those activities that truly drive these costs. It is more accurate than traditional costing methods. It is a valuable technique to know for a number of key reasons:
* ABC allows you to develop a picture of the true profitability of product lines, customer segments, distribution channels, geographies, and other market segments.
* ABC aids in a number of strategic decisions, from determining target markets to selecting the optimal product mix to making informed pricing decisions.
Specifically, ABC leads to a more accurate assignment of costs to cost objects through a process of:
* Matching the logical flow of costs through the cost system to the economics of true cost flows.
* Mapping costs from "resources" ( wages paid, supplies purchased) to activities performed ( units manufactured) to cost objects ( products, customers, distribution channels) that drive those costs.
ABC is an invaluable tool for making strategic decisions, as it allows you to develop a picture of true profitability of product lines, customer segments, geographies, distribution channels, and other markets. This document explains a 7-phase approach to Activity Based Costing and includes examples.
Собрание схем по методологии калькулирования себестоимости - Activity-Based Costing. Также есть схемы по Activity-Based Budgeting. Схемы собраны в одну презентацию. Надеюсь, что поможет Вам мои подборки. Мой сайт: ivan-shamaev.ru
Activity-based costing (ABC) is a costing model that identifies activities in an organization and assigns the cost of each activity resource to all products and services according to the actual consumption by each: it assigns more indirect costs (overhead) into direct costs.
In this way an organization can precisely estimate the cost of its individual products and services for the purposes of identifying and eliminating those which are unprofitable and lowering the prices of those which are overpriced.
Activity Based Costing (ABC) analysis is a methodology for assigning costs to those activities that truly drive these costs. ABC is an invaluable tool for making strategic decisions, as it allows you to develop a picture of true profitability of product lines, customer segments, geographies, distribution channels, and other markets.
To view and download the full document, please go here:
http://learnppt.com/powerpoint/68_Activity-Based-Costing.php
For more business strategy frameworks, check out this page:
http://learnppt.com/business-strategy.php
http://learnppt.com/powerpoint/frameworks/
Chapter 7: systems design: activity-based costing -- assigning overhead costs to products, plant wide overhead rate, departmental overhead rates, designing and abc system, hierarchy of activities, activity-based costing at classic brass, using activity-based costing, direct labor hours as base, computing activity rates, shifting to overhead costs, targeting process improvements, evaluation of activity-based costing, abc and service industries, cost flows in an abc system.
2024.06.01 Introducing a competency framework for languag learning materials ...Sandy Millin
http://sandymillin.wordpress.com/iateflwebinar2024
Published classroom materials form the basis of syllabuses, drive teacher professional development, and have a potentially huge influence on learners, teachers and education systems. All teachers also create their own materials, whether a few sentences on a blackboard, a highly-structured fully-realised online course, or anything in between. Despite this, the knowledge and skills needed to create effective language learning materials are rarely part of teacher training, and are mostly learnt by trial and error.
Knowledge and skills frameworks, generally called competency frameworks, for ELT teachers, trainers and managers have existed for a few years now. However, until I created one for my MA dissertation, there wasn’t one drawing together what we need to know and do to be able to effectively produce language learning materials.
This webinar will introduce you to my framework, highlighting the key competencies I identified from my research. It will also show how anybody involved in language teaching (any language, not just English!), teacher training, managing schools or developing language learning materials can benefit from using the framework.
The Roman Empire A Historical Colossus.pdfkaushalkr1407
The Roman Empire, a vast and enduring power, stands as one of history's most remarkable civilizations, leaving an indelible imprint on the world. It emerged from the Roman Republic, transitioning into an imperial powerhouse under the leadership of Augustus Caesar in 27 BCE. This transformation marked the beginning of an era defined by unprecedented territorial expansion, architectural marvels, and profound cultural influence.
The empire's roots lie in the city of Rome, founded, according to legend, by Romulus in 753 BCE. Over centuries, Rome evolved from a small settlement to a formidable republic, characterized by a complex political system with elected officials and checks on power. However, internal strife, class conflicts, and military ambitions paved the way for the end of the Republic. Julius Caesar’s dictatorship and subsequent assassination in 44 BCE created a power vacuum, leading to a civil war. Octavian, later Augustus, emerged victorious, heralding the Roman Empire’s birth.
Under Augustus, the empire experienced the Pax Romana, a 200-year period of relative peace and stability. Augustus reformed the military, established efficient administrative systems, and initiated grand construction projects. The empire's borders expanded, encompassing territories from Britain to Egypt and from Spain to the Euphrates. Roman legions, renowned for their discipline and engineering prowess, secured and maintained these vast territories, building roads, fortifications, and cities that facilitated control and integration.
The Roman Empire’s society was hierarchical, with a rigid class system. At the top were the patricians, wealthy elites who held significant political power. Below them were the plebeians, free citizens with limited political influence, and the vast numbers of slaves who formed the backbone of the economy. The family unit was central, governed by the paterfamilias, the male head who held absolute authority.
Culturally, the Romans were eclectic, absorbing and adapting elements from the civilizations they encountered, particularly the Greeks. Roman art, literature, and philosophy reflected this synthesis, creating a rich cultural tapestry. Latin, the Roman language, became the lingua franca of the Western world, influencing numerous modern languages.
Roman architecture and engineering achievements were monumental. They perfected the arch, vault, and dome, constructing enduring structures like the Colosseum, Pantheon, and aqueducts. These engineering marvels not only showcased Roman ingenuity but also served practical purposes, from public entertainment to water supply.
Welcome to TechSoup New Member Orientation and Q&A (May 2024).pdfTechSoup
In this webinar you will learn how your organization can access TechSoup's wide variety of product discount and donation programs. From hardware to software, we'll give you a tour of the tools available to help your nonprofit with productivity, collaboration, financial management, donor tracking, security, and more.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Biological screening of herbal drugs: Introduction and Need for
Phyto-Pharmacological Screening, New Strategies for evaluating
Natural Products, In vitro evaluation techniques for Antioxidants, Antimicrobial and Anticancer drugs. In vivo evaluation techniques
for Anti-inflammatory, Antiulcer, Anticancer, Wound healing, Antidiabetic, Hepatoprotective, Cardio protective, Diuretics and
Antifertility, Toxicity studies as per OECD guidelines
2. ACTIVITY BASED COSTING
Traditional costing system ABC System
1. Direct and indirect costs 1. The direct and indirect costs are
are allocated to process allocated to activities like
centres or major departments Purchases, Material handling,
Producing the goods, machine set
ups, Supervising production
workers, Inspecting finished goods,
Dispatching good to customers
2. Cost driver as base for 2.Cost driver as base for allocation
allocation of overheads is not of overheads is based on cause
based on cause and effect and effect relationship between
relationship overheads and the overhead
allocation base (the cost driver)
Stores deptt – Labour hours or
machine hours or units produced
3. There is only one cost 3. There are many allocation bases
driver Or OH allocation as per activity chosen and cause
and effect base relationship
1-2
3. 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 Mode II Mode III
Production:
Units 10,000 20,000 4,000
Runs 1 run of 10,000 4 runs of 10 runs of
units 5,000 units 400 units
1-3
4. Traditional, Volume-Based Product-Costing System
Additional information includes:
Mode I Mode II Mode III
Direct materials $ 50.00 $ 90.00 $ 20.00
Direct labor 60.00 80.00 40.00
Budgeted manufacturing overhead $3,894,000
Mode I Mode II Mode III
Direct materials $ 50.00 $ 90.00 $ 20.00
Direct labor (hr/board) 3 4 2
Setup time (hr/run) 10 10 10
Machine time (hr/board) 1 1.25 2
Manufacturing overhead is determined as follows
1-4
5. Traditional, Volume-Based
Product-Costing System
Mode I Mode II Mode III
Units produced 10,000 20,000 4,000
Direct labor (hr/unit) 3 4 2
Total hours 30,000 80,000 8,000
Total hours required 118,000
Budgeted manufacturing overhead $3,894,000
= $33 per hour
Budgeted direct-labor hours 118,000
Mode I Mode II Mode III
Direct labor (hr/unit) 3 4 2
Overhead rate per hour $ 33 $ 33 $ 33
Overhead per unit $ 99 $ 132 $ 66
1-5
6. Traditional, Volume-Based
Product-Costing System
With these product costs, Aerotech established
target selling prices (Cost × 125%).
Mode I Mode II Mode III
Direct materials $ 50.00 $ 90.00 $ 20.00
Direct labor 60.00 80.00 40.00
Manufacturing overhead 99.00 132.00 66.00
Total $ 209.00 $ 302.00 $ 126.00
Mode I Mode II Mode III
Cost per unit $ 209.00 $ 302.00 $ 126.00
Target selling price 261.25 377.50 157.50
209.00 x 1.25
1-6
7. Activity Based Costing System
(ABC)
ABC systems
follow a two-
stage procedure
to assign
overhead costs to
products.
1-7
8. 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.
1-8
9. Activity Based Costing System
(ABC)
ABC systems follow a
two-stage procedure
to assign overhead
costs to products.
Stage Two
Identify cost drivers
appropriate to each activity
and allocate overhead to
the products.
1-9
10. ABC System
1. Identify major activities
activity consists of aggregation of tasks having common
characteristics)
e.g.
Activity: purchase of materials :
Tasks: receiving a purchase request, inviting quotations,
selecting supplier, placing orders, receiving material
1-10
11. 2. Assigning costs to Activity Cost
Centers:
Cost incurred on these activities are
assigned to these Activity Cost Centers.
Direct costs are traced directly.
Indirect costs are assigned to activities on the
basis of cause and effect cost drivers.
1-11
12. There must be a cause - effect relationship
between the overheads to be allocated and the
allocation base otherwise inaccurate allocation
of overheads will occur.
For an example, it would be wrong to allocate
overheads of stores dept. on the basis of labor
hours.
It should be more appropriately based on number
of units handled or used in production process.
1-12
13. 3. Selecting cost drivers for allocating costs
to cost objects
The costs accumulated for an activity cost centre
are then allocated to different cost objects.
For this, a separate activity cost driver or
allocation rate is used.
In ABC analysis, the tracing of overheads to cost
objects requires that cost behavior must be
understood so that appropriate cost drivers are
identified.
1-13
14. Identifying activities and cost drivers
depends upon type of activity, Volume related or not volume related
Major activity Associated costs Cost drivers
1. Processing orders for 1. Labor cost of 1. No. of purchase
Purchase of materials/ employees orders processed
Stores working in
purchase dept.
2. Handling materials and 2. Labor cost of 2. No. of materials and
Parts stores, depreciation parts requisitions
of machines used for
moving materials
3. Inspection of material and 3. Labor cost of 3. No. of receipts of
parts purchased inspection team, materials and parts
Depr. Of testing
equipments
4. Setting up production 4. Labor cost of 4. No. of set ups
procedures works involved in set-
ups and depr. of set
up equipments
1-14
15. Identifying activities and cost drivers
Depends upon type of activity, Volume related or not volume related
Major activity Associated costs Cost drivers
5. Producing the goods 5. Depreciation of 5. No. of machine hours
machines
6. Supervising production 6. Salary of assembly 6. No. of assembly
workers supervisors labor hours
7. Inspecting finished goods 7. Labor cost of 7. No. of inspections
inspectors and
depreciation of test
equipments
8. Dispatching good to 8. Labor cost of 8. No. of boxes packed
customers packing and cost of
Packing materials
1-15
16. Two Key Points
A large proportion of non- Product diversity
unit-level activities When the consumption
A unit-level cost driver, ratios differ widely
such as direct labor, between activities, no
machine hours, or single cost driver will
throughput, will not be accurately assign the
able to assign the costs resulting overhead costs.
of non-unit-level activities
accurately.
1-16
17. Cost Drivers
A characteristic of an event or activity that results
in the incurrence of costs. In selecting a cost
driver, we must consider . . .
Degree of Behavioral
Correlation Effects
Cost of
Measurement
1-17
18. Direct versus Indirect Costs
Volume-Based Costing Activity-Based Costing
All production costs An effort is made to
except direct account for as many
materials and direct costs as possible as
labor are lumped direct costs of
together in one production.
overhead cost pool.
Indirect
Costs
1-18
19. Interviewing and Paper Trails
The information for ABC systems initially comes
from interviews with employees in the support
departments and a review of each department’s
records.
1-19
20. Storyboarding
A procedure used to develop a detailed
process flow chart, which visually represents
activities and the relationships among
activities.
Step These are the steps we
1 follow to build a
Step
memory board.
2
Step
3
Step
4
1-20
21. Machinery
cost pool
Maintenance Lubrication
Depreciation Electricity
Computer Support Calibration
1-21
24. Overhead Costs
Total budgeted cost = $3,894,000 Identification
Activity
of Activity
must be
done on Activity Cost Pools
each unit Cost
produced. Pools
Product-
Unit Batch Sustaining Facility
Level Level Level Level
Machinery Setup Engineering Facility
cost pool cost pool cost pool cost pool
$1,212,600 $3,000 $700,000 $507,400
Activity Activities needed to support Activity required in order
performed an entire product line for the production
on each process to occur.
batch
produced.
1-24
25. Product-
Unit Batch Sustaining Facility
Level Level Level Level
Machinery Setup Engineering Facility
cost pool cost pool cost pool cost pool
$1,212,600 $3,000 $700,000 $507,400
Receiving/Inspection
cost pool $200,000
Material-Handling
cost pool $600,000
Quality-Assurance
cost pool $421,000
Packaging/Shipping
cost pool $250,000
1-25
26. STAGE ONE
Various overhead
Maintenance Lubrication
costs related
to machinery Depreciation Electricity
Computer Support Calibration
Activity
cost Machinery Cost Pool
pool Total budgeted cost = $1,212,600
1-26
27. STAGE TWO
Calculate Budgeted Machinery Costs = $1,212,600
the pool Budgeted Machine Hours 43,000
rate = $28.20/hour
Mode I: Mode II:
$28.20 per hr. $28.20 per hr.
1 hr. per unit 1.25 hr. per unit
Cost $28.20 per unit $35.25 per unit
Assignment
Mode III:
$28.20 per hr.
2 hr. per unit
$56.40 per unit
1-27
28. STAGE ONE
Total budgeted setup cost
Calculation of $20 per hour
total setup cost 10 hr. per setup
$200 cost per setup
15 production runs
$ 3,000 Total
Activity
cost Setup Cost Pool
pool Total budgeted cost = $3,000
1-28
29. STAGE TWO
Calculate Budgeted Setup Costs = $3,000
the pool Planned Production Runs 15 runs
rate = $200 per run
Mode I: (1 Run) Mode II: (4 Runs)
$200 per run $200 per run
10,000 units per run 5,000 units per run
Cost = $.02 per unit = $.04 per unit
Assignment
Mode III: (10 Runs)
$200 per run
400 units per run
= $.50 per unit
1-29
30. STAGE ONE
Various overhead Engineering salaries Engineering software
costs related
to engineering Engineering supplies Depreciation
Activity
cost Engineering Cost Pool
pool Total budgeted cost = $700,000
1-30
31. STAGE TWO
Allocate based Engineering Cost Pool
on engineering Total budgeted cost = $700,000
transactions
Mode I: Mode II:
25% × $700,000 45% × $700,000
10,000 units 20,000 units
Cost = $17.50 per unit = $15.75 per unit
Assignment
Mode III:
30% × $700,000
4,000 units
= $52.50 per unit
1-31
32. Exh.
STAGE ONE 5-9
Various overhead Plant depr. Property taxes
costs related
Plant mgmt. Insurance
to general
operations Plant maint. Security
Activity
cost Facility Cost Pool
pool Total budgeted cost = $507,400
1-32
33. Exh.
STAGE TWO 5-9
Calculate Budgeted Facilities Cost = $507,400
the pool Budgeted Direct-Labor Hours 118,000
rate = $4.30/hour
Mode I: Mode II:
$4.30 per hr. $4.30 per hr.
× 3 hr. per unit × 4 hr. per unit
Cost $12.90 per unit $17.20 per unit
Assignment
Mode III:
$4.30 per hr.
× 2 hr. per unit
$8.60 per unit
1-33
34. Other Overhead Costs
Re c e ivin g an d In s pe c t ion Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 200,000 × 6% ÷ 10,000 = $ 1.20
Mode II 200,000 × 24% ÷ 20,000 = 2.40
Mode III 200,000 × 70% ÷ 4,000 = 35.00
Mat e rial-Han dlin g Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 600,000 × 7% ÷ 10,000 = $ 4.20
Mode II 600,000 × 30% ÷ 20,000 = 9.00
Mode III 600,000 × 63% ÷ 4,000 = 94.50
Qu alit y-As s u ran c e Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 421,000 × 20% ÷ 10,000 = $ 8.42
Mode II 421,000 × 40% ÷ 20,000 = 8.42
Mode III 421,000 × 40% ÷ 4,000 = 42.10
P ac kagin g an d Sh ippin g Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 250,000 × 4% ÷ 10,000 = $ 1.00
Mode II 250,000 × 30% ÷ 20,000 = 3.75
Mode III 250,000 × 66% ÷ 4,000 = 41.25
1-34
35. Other Overhead Costs
Re c e ivin g an d In s pe c t ion Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 200,000 × 6% ÷ 10,000 = $ 1.20
Mode II 200,000 × 24% ÷ 20,000 = 2.40
Mode III 200,000 × 70% ÷ 4,000 = 35.00
Mat e rial-Han dlin g Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
$14.82 Mode I
Mode II
$ 600,000
600,000
×
×
7%
30%
÷
÷
10,000
20,000
= $
=
4.20
9.00
Mode III 600,000 × 63% ÷ 4,000 = 94.50
Qu alit y-As s u ran c e Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 421,000 × 20% ÷ 10,000 = $ 8.42
Mode II 421,000 × 40% ÷ 20,000 = 8.42
Mode III 421,000 × 40% ÷ 4,000 = 42.10
P ac kagin g an d Sh ippin g Cos t P ool
Board Ove rh e ad × % ÷ Un its = Cos t/Un it
Mode I $ 250,000 × 4% ÷ 10,000 = $ 1.00
Mode II 250,000 × 30% ÷ 20,000 = 3.75
Mode III 250,000 × 66% ÷ 4,000 = 41.25
1-35
36. Product Cost from ABC
These are the new product costs when
Aerotech uses ABC.
Mode I Mode II Mode III
Direct materials $ 50.00 $ 90.00 $ 20.00
Direct labor 60.00 80.00 40.00
Machinery
Setup
Engineering
Facilities
Other
Total
1-36
37. Product Cost from ABC
These are the new product costs when
Aerotech uses ABC.
Mode I Mode II Mode III
Direct materials $ 50.00 $ 90.00 $ 20.00
Direct labor 60.00 80.00 40.00
Machinery 28.20 35.25 56.40
Setup 0.02 0.04 0.50
Engineering 17.50 15.75 52.50
Facilities 12.90 17.20 8.60
Other 14.82 23.57 212.85
Total $ 183.44 $ 261.81 $ 390.85
1-37
38. Distorted Product Costs
Both original and ABC target selling prices are
based on (Cost × 125%).
Mo de I Mo de II Mo de III To t a l
Tra dit io n a l co s t in g
$ 209.00 $ 302.00 $ 126.00
ABC co s t in g 183.44 261.81 390.85
u n it s 10,000 20,000 4,000
To t a l co s t s
Tra dit io n a l
ABC
1-38
39. Distorted Product Costs
Both original and ABC target selling prices are
based on (Cost × 125%).
Mo de I Mo de II Mo de III To t a l
Tra dit io n a l co s t in g209.00
$ $ 302.00 $ 126.00 NA
AB C co s t in g 183.44 261.81 390.85 n a
u n it s 10,000 20,000 4,000 n a
To t a l co s t s
Tra dit io n a l 2,090,000 6,040,000 504,000 8634000
AB C 1834400 5236200 1563400 8634000
1-39
40. Distorted Product Costs
Both original and ABC target selling prices are
based on (Cost × 125%).
Mo de I Mo de II Mo de III
Tra dit io n a l co s t in g $ 209.00 $ 302.00 $ 126.00
ABC co s t in g 183.44 261.81 390.85
Origin a l t a rget s ellin g p rice
ABC t a rget s ellin g p rice
.
1-40
41. Distorted Product Costs
Both original and ABC target selling prices are
based on (Cost × 125%).
Mode I Mode II Mode III
Tradition al cos tin g $ 209.00 $ 302.00 $ 126.00
ABC cos tin g 183.44 261.81 390.85
Origin al targe t s e llin g price 261.25 377.50 157.50
ABC targe t s e llin g price 229.30 327.26 488.56
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]
1-41
42. Distorted Product Costs
Can you identify any problems Aerotech is likely
to face as a result of this distortion?
Mode I Mode II Mode III
Tradition al cos tin g $ 209.00 $ 302.00 $ 126.00
ABC cos tin g 183.44 261.81 390.85
Cos t dis tortion pe r u n it 25.56 40.19 (264.85)
Un its produ ce d 10,000 20,000 4,000
Total cos t dis tortion 255,600 803,800 (1,059,400)
Traditional costing understates the cost
of complex, low volume products.
1-42
43. Indicators of Need for ABC
Direct labor is a Product-line profit
small percentage margins are hard
of total costs to explain
Line managers do not
Sales are increasing,
believe the product
but profits are declining.
costs reports
Some products that
Marketing does not
have reported high
use costs reports for
profit margins are not
pricing decisions
sold by competitors
1-43
44. The use of
ABC costing
information
to help
management
make decisions
1-44
45. Activity-based costing establishes relationships
between overhead costs and activities so that
we can better allocate overhead costs.
Activity-based management focuses
on managing activities to reduce costs.
1-45
52. Customer profitability analysis uses
activity-based costing to determine
the activities, costs, and profit associated
with serving particular customers.
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53. Required
special
packaging.
Orders Demand
small fast
quantities. service.
Often
Orders
changes
frequently.
orders.
A costly
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54. Cost Drive
Customer-Related Activities Cost Driver Base Rate
Order processing Purchase orders $ 150
Sales contacts (phone calls, faxes, etc.) Contacts 100
Sales visits Visits 1,000
Shipment processing Shipments 200
Billing and collection Invoices 160
Design/engineering change orders Design changes 4,000
Special packaging Units packaged 40
Special handling Units handled 60
A company may use these customer
related costs to help determine the
profitability of each customer.
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55. No materials are purchased and no products
are manufactured until they are needed.
The primary goal of a
JIT production system is
to reduce or eliminate
inventories at every
stage of production.
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56. Smooth, uniform production rate
Pull method of production
Purchase is small lot sizes
Quick, inexpensive setups
High quality materials
Effective preventive maintenance
Teamwork
Multiskilled workers
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57. Long-term
contracts with
suppliers.
Only a few Parts delivered
suppliers. in small lots.
Grouped Minimal
payments to inspection of
vendor. materials.
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58. • Activity based costing in service industry
• As useful as in mfg. industry
• Mangers want more detailed and accurate
information about the cost of producing
products and services they are selling
• Airlines, ins co, banks, hospitals, fin service
firms, hotels railroads,
• Air France, American express, Bank of
America, DHL, Fed Ex, US postal service
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59. ABC at service companies:
Identifying
Activities Activity cost pools Cost drivers
Classification of activities at
• Unit level :
• batch level,
• product sustaining level,
• facility (general operations) level
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60. Bajaj Allianze General Insurance Co. Ltd
Claims Department
Classification of activities at
• Unit level : Entering initial claim into computer
• batch level: moving a batch of claims from one
processing step to the next
• product sustaining level: maintenance of the
medical service provider network ( physicians,
hospitals )
• facility (general operations) level: general
administration of claims business unit
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61. • ABC at Delaware medical centre (Primary Care
Unit- OPD)
• Patient Appointment
• New routine extended complex
• Continuing routine extended complex
• Every appointment needs
• Regd. nurse 1 : vital signs/preparing patient for
Primary health care professional
• PHCP 1: physician / intern / resident doctor or
nurse practitioner
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62. • ABC team identified :
• Activities cost drivers
Physician time Physician minutes with patient
Practitioner nurse time P-Nurse minutes with patient
Intern or resident time Intern minutes with patient
Regd. Nurse time Regd. Nurse minutes with patient
Clerical time: new patients New patient visits
Clerical time : continuing Continuiing patient visits
Billing Billing lines (items on a bill)
Facility Patient visits (both new and continuing)
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63. • Activity : physician time
• Cost driver : physician minutes with patient
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 960000 240000 4 R 80000 320000 8000 $40
• E 100000 400000 5000 $80
• C 60000 240000 2000 $120
• Activity Nurse Practitioner time
• Cost driver : NP minutes with patient
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 90000 30000 3 R 12000 36000 1200 $30
• E 10000 30000 500 $60
• C 8000 24000 320 $75
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64. • Activity : intern or resident time
• Cost driver : intern or resident minutes with patient
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 412500 125000 3.30 R 40000 132000 4000 $33
• E 50000 165000 2500 $66
• C 35000 115500 1000 $115
• Activity : Rgd. nurse time
• Cost driver : RN minutes with patient
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 281980 245200 1.15 R 132000 151800 13200 $11.50
• E 80000 92000 8000 $11.50
• C 33200 38180 3320 $11.50
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65. • Activity : Clerical time –new patients
• Cost driver : New patients number
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 135300 12300 11.00 R 7200 79200 7200 $11
• E 3000 33000 3000 $11
• C 2100 23100 2100 $11
• Activity : Cleical time – continuing patients
• Cost driver : cont. patients number
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 61100 12220 5.00 R 6000 30000 6000 $5
• E 5000 25000 5000 $5
• C 1220 6100 1220 $5
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66. • Activity : Billing
• Cost driver : Billing lines on a bill
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 38480 76960 0.50 R 26400 13200 13200 $1.00
• E 24000 12000 8000 $1.50
• C 26560 13280 3320 $4.00
• Activity : Facility
• Cost driver : number of new plus cont. patients visits
• Cost cost driver rate PV driver activity no. of activity
• pool qty Type qty cost visits cost /p
• 245200 24520 10.00 R 13200 132000 13200 $10
• E 8000 80000 8000 $10
• C 3320 33200 3320 $10
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67. • Costing of service
• 1. Each patient sees either a physician or PN or
intern or resident – not all four
• 2. each patient is either a new patient or a
continuing patient and not both.
• 3. to compute cost of particular appointment, we
should select only one of primary health care
professionals, and select one of the two clerical
time categories –new or continuing.
• 4. finally since every appointment involves RN ,
billing, and use of primary care unit facility, all of
these activities must be included in the cost
calculation.
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68. • Cost of extended appointment for a new patient
seeing a nurse practitioner
• Activity Cost
• Nurse practitioner time
• RN time
• Clerical time –new patients
• Billing
• Facility
• Total 94.00
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69. • Cost of extended appointment for a new patient
seeing a nurse practitioner
• Activity cost
• Nurse practitioner time 60.00
• RN time 11.50
• Clerical time –new patients 11.00
• Billing 1.50
• Facility 10.00
• Total 94.00
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