Day%203 - Topic 2 Cost allocation II Activitybased costing...

Info iconThis preview shows pages 1–12. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 2 Topic 2 Cost allocation II – Activity- Cost allocation II – Activity- based costing systems based costing systems
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Criticisms of traditional costing Criticisms of traditional costing systems systems Overcosts high volume products – treats higher-level costs like unit-level costs. Undercosts low volume products – ignores higher-level costs.
Background image of page 2
Symptoms of an Outdated Symptoms of an Outdated Functional Cost System Functional Cost System 1. The outcome of bids is difficult to explain. 2. Competitors’ prices appear unrealistically low. 3. Products that are difficult to produce show high profits. 4. Operational managers want to drop products that appear profitable. 5. Profit margins are difficult to explain. Continued Continued
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Symptoms of an Outdated Symptoms of an Outdated Functional Cost System Functional Cost System 6. The company has a highly profitable niche all to itself. 7. Customers do not complain about price increases. 8. The accounting department spends a lot of time supplying cost data for special projects. 9. Some departments are using their own accounting system. 10. Product costs change because of changes in financial reporting regulations.
Background image of page 4
Product diversity means that the products consume overhead activities in systematically different proportions.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
ABC: Two-Stage Assignment Cost of Resources Cost of Resources Assign Costs Assign Costs Activities Activities Assign Costs Assign Costs Products Products Driver Tracing Driver Tracing Driver Tracing
Background image of page 6
Implementation of ABC Implementation of ABC 1. Identify activities that consume resources and assign costs to those activities. 2. Identify cost pools 3. Identify cost driver(s) associated with each activity – activity driver. 4. Compute a cost rate per cost driver unit in each activity center – activity rate. 5. Assign costs to products by multiplying the cost driver rate by the volume of cost drivers consumed by the product.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Activity Activity Defined as event that causes consumption of overhead resources. Products consume activities; activities consume resources
Background image of page 8
Unit-level activities are those that are performed each time a unit is produced. Examples: Power and machine hours are used each time a unit is produced. Direct materials and direct labor activities are also unit-level activities, even though they are not overhead costs. Classification of Activities Classification of Activities
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Batch-level activities are those that are performed each time a batch of products is produced. Examples: Setups, inspections, production scheduling, and material handling. Classification of Activities Classification of Activities
Background image of page 10
Product-level (sustaining) activities are those that are performed as needed to support the various products produced by a company. These activities consume inputs that develop products or allow products to be produced and sold.
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/06/2011 for the course ECON 3332 taught by Professor Craig during the Spring '11 term at Rensselaer Polytechnic Institute.

Page1 / 38

Day%203 - Topic 2 Cost allocation II Activitybased costing...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online