11 - 1 ACCT3012: Management Accounting B Week 11 Product...

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Unformatted text preview: 1 ACCT3012: Management Accounting B Week 11 Product & Service Costing II Activity Based Decisions 2 1. Readings Hilton, R. (2007) Managerial Accounting: Creating Value in a Dynamic Business Environment (Sixth Edition) Chapter 7: Activity-Based Management and Todays Advanced Manufacturing Environment . Milano, R.J. (2000) Activity Based Management for Colleges and Universities. Management Accounting Quarterly. Spring. pp2-6. Armstrong, P. (2002) The costs of activity-based management. Accounting,Organizations and Society . pp.99-120. 2 3 2. Learning Objectives Discuss the history of activity-based management (ABM); Discuss the nature and purpose of ABM; Identify the steps in performing ABM; Identify inputs, outputs, resources consumed, and performance measures for activities; Discuss the use of ABM information and its role in the recommendation in improvements in activities; Discuss the technical, behavioural and cultural attributes of ABM. 3 4 3. Outline Traditional Costing Activity Based Costing ABC examples Beyond ABC Intro to ABM All about Value Nuts and bolts of ABM Evaluating ABM 4 5 4. ABC: Addressing the problem of product cross-subsidization Traditional simple costing systems use a single overhead cost pool and a single indirect cost rate to allocate overhead This smoothes or averages costs over products Cost smoothing can lead to product cross- subsidization : Product under-costing product uses a high level of resources but is reported to have a low cost per unit Product over-costing product uses a low level of resources but is reported to have a high cost per unit 6 Illustrating cross-subsidization Entree Dessert Drinks Total Emma $11 $0 $4 $15 James 20 8 14 42 Jessica 15 4 8 27 Matthew 14 4 6 24 Total $60 $16 $32 $108 Average $15 $4 $8 $27 7 Whats the problem? In this example, cost smoothing results in Emma significantly subsidising James appetite. Matthew also pays for more than he has eaten. 8 5. Activity-based costing (ABC) ABC helps us to better trace indirect costs to cost objects, especially as the percentage of indirect costs to total costs increases, by using multiple cost drivers...
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11 - 1 ACCT3012: Management Accounting B Week 11 Product...

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