ch04s - ActivityBasedCost ManagementSystems Chapter4...

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Activity-Based Cost Management Systems Chapter 4
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Traditional Costing System Traditional Costing System Direct  Direct  Materials Materials For Pen For Pen Casings  Casings  $22,500 $22,500 Direct  Direct  Labor Labor For Pen For Pen Casings  Casings  $135,000 $135,000 Direct  Direct  Materials For  Materials For  Cell  Cell  Phone Phone Casings Casings $12,000 $12,000     Direct  Direct  Labor For  Labor For  Cell Phone Cell Phone Casings Casings $15,000  $15,000  Sales $360,000 Sales $360,000 Sales $80,000 Sales $80,000 Unallocated $00,000 Unallocated $00,000 All  All  Indirect  Indirect  Resources  $220,000 $220,000 All Unallocated  All Unallocated  Value Chain   Value Chain   Costs   Costs   $100,000 $100,000 Cost  Driver Cost  Driver [Direct   Labor  [Direct   Labor  Hours] Hours]
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Traditional Costing System  Traditional Costing System  Statement of Operating Income Statement of Operating Income Traditional Cost Allocation System Traditional Cost Allocation System Pen Pen Casings Casings Cell Phone Cell Phone Casings Casings Sales Sales $440,000 $440,000 $360,000 $360,000 $80,000 $80,000 Direct materials Direct materials     34,500     34,500     22,500     22,500   12,000   12,000 Direct labor Direct labor   150,000   150,000   135,000   135,000   15,000   15,000 Indirect manufacturing Indirect manufacturing   220,000    220,000  (147%) (147%)   198,000   198,000   22,000   22,000 Gross profit Gross profit $  35,500 $  35,500 $    4,500 $    4,500 $31,000 $31,000 Corporate expenses Corporate expenses         100,000   100,000 Operating loss Operating loss                                  ($  64,500)            ($  64,500) Gross profit margin Gross profit margin        8.07%        8.07%      1.25%      1.25%  38.75%  38.75%
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ABC System ABC System Direct  Direct  Materials Materials For Pen For Pen Casings  Casings          $22,500 $22,500 Direct  Direct  Labor Labor For Pen Casings  Casings  $135,000 Direct  Direct  Materials For  Materials For  Cell  Phone Phone Casings Casings           $12,000   Direct  Direct  Labor For  Labor For  Cell Phone Casings Casings $15,000  $15,000  Sales $360,000 Sales $360,000 Sales $80,000 Sales $80,000 Unallocated $00,000 Unallocated $00,000 Plant and  Plant and  Machinery Machinery $180,000 $180,000 All Unallocated  All Unallocated  Value Chain Costs   Value Chain Costs   $100,000 $100,000 Cost  Driver Cost  Driver [Direct   Labor Hours] [Direct   Labor Hours] Cost  Driver Cost  Driver [Distinct Parts] [Distinct Parts] Engineers and Engineers and CAD Equipment CAD Equipment $40,000 $40,000 Processing Processing Activity Activity $135,000  $135,000  +   8,000 +   8,000   $143,000 $143,000 Production Support Production Support Activity Activity $45,000  $45,000  +32,000 +32,000   $77,000 $77,000 75% 25% 80% 120,000 Split
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Simple Cost Accounting Systems:  Ericson Ice Cream Company  Example Ericson had been the low-cost producer of  chocolate and vanilla ice cream, with profit  margins exceeding 20% of sales Several years ago Ericson expanded their  business by extending their product line  into products with premium selling prices
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ch04s - ActivityBasedCost ManagementSystems Chapter4...

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