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Ch 7 Slides - 8-l Activity Based Costing(ABC Activity-Based...

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8-l Activity-Based Costing: A Tool to Aid Decision Making Chapter Seven Learning Objective 1 are Cos ABC drffers from traditional cost accounting in three ways are lrea Activity-Based Gosti ABC differs from traditional cost accounting in three ways O ABC assigns both types of costs to products are Costi ABC differs from traditional cost accounting in three = g CL o o o E o J Number of cost pools Activity Based Costing (ABC) ABC is designed to provide managers with cost information for strategic and other decisions that potentially affect capacity and therefore affect fixed as well as variable costs.
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8-2 are Acti Cos ABC differs from traditional cost accounting in three ways Each ABC cost pool has its own unique measure of activity l*",,n"t*rr"r* Activity consumptron of overhead I ,-G\ A "cost bucket' in which @sts related to a particular aciivity reasure are are Gosti The term cost driver is also used to refer to an activity measure An allocation base in an activ$-based costing system. ow Gosts are Trea Two common types of activity measures: are Activ Product-Level Activity Organization- sustaining Activity Customer-Level Activity Unit-Level Batch-Level Activity Activity \,__,--,----- / X---<- .,' Manufacturing \ , companies typically combine \
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8-3 ABC lmolementations Classic Brass - An ABC Example Manuftrtunng overi€ad is [email protected] to prcducls usir€ a sinqle olantwide oved€ad rate bapd m machr'ne hdrs Clasdc Bras lncome Shtement Year Ended Oecember 31, 2005 Sales Cog of goods eld DiFd mateials DiFd labor Manufaduaing overhead Gros maqin Selling and adminisrative expen*s Shipping expen*s Marketing erpenes General admaniSative expenes f,l€t operatinq los 5 3,2oo,ooo 5 975,000 35'l,2sO 1.000,000 2,326,2fi 873,750 65 000 300 000 510 000 875,000 t (1,250) ost and Activity Measures At Classic Brass, the ABC team, selected the following activity cost pools and activity measures: Pool Acti,tt& MEqs.iq Customer Orders - assrgned all costs of resources that are consumed by taking and processing customer orders. Product Designs - assigned ail costs of resources consumed by designing products Order Size - assigned all costs of resources consumed as a consequence of the number of unils produced Customer Relations - assigned all costs associated with maintaining relations with customers Other - assigned all overhead costs that are not associated with the other cost pools. Learning Objective 2 Overhead Cosas at Clasdc Bras (Manufacturing and Nonmanufac'turing) Production Department lndirect lactory wages 5 500,0m Fac{oryequipmentdepreciation 3m,0m Faciory utilities 120,000 Fastory building leae 80,000 $ 1,000,000 General Adm ini*rative Depariment Adminisarative wages and $laries Oflice equipment depreciation AdminiSrative building leae Marketing Departmeni Marketing wages and slaries Selling expenes Tgtal overhead costs 250,0m ,100,00o 50,000 60,000 510 m0
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8-4 Overhead Cosls at Clasdc Bras (Manutacturing rnd Nonmanutac{uring) Production D€partnent lndiEct factory wages 3 5m,0q, FrctoryequipmentdepFciation 3m,0d, F.ctory utiliti€s 120,0m Faclory building leae 80,0m t 1,m0'000 Gcngrrl Adminisfative DcPartmetrt Administ tiw wages and
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