Mowen3e Ch07--revised

Mowen3e Ch07--revised - Chapter Seven Activity-Based...

Info iconThis preview shows pages 1–15. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter Seven Activity-Based Costing and Management
Background image of page 1

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

View Full DocumentRight Arrow Icon
Learning Objectives 1. Explain why functional-based costing approaches may produce distorted costs. 2. Explain how an activity-based costing system works for product costing. 3. Describe activity-based customer and supplier costing. 4. Explain how activity-based management can be used for cost reduction. 2
Background image of page 2
OBJECTIVE 1 Explain why functional-based costing approaches may produce distorted costs.
Background image of page 3

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

View Full DocumentRight Arrow Icon
Functional-based Costing Systems Functional-based systems Based on volume measures, such as Direct labor hours Machine hours Two types Plantwide rates Departmental rates Often produce average costs that severely over- or understate individual product costs. 4
Background image of page 4
Functional-based Costing System Limitations 1. Proportion of non-unit-related overhead costs to total overhead charge is large 2. Degree of product diversity is great Two major factors impair their ability to assign overhead costs accurately: 5
Background image of page 5

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

View Full DocumentRight Arrow Icon
Unit and Non-Unit Activities Activities that are performed each time a unit is produced. From the viewpoint of the subsequent process, transferred- in costs are a type of raw material cost. Unit-level-activities --- Non-unit-level-activities -- 6
Background image of page 6
Non-Unit-Related Overhead Costs What is needed for accurate cost assignment of non-unit-level activities? Non-unit-level activity drivers Factors that measure the consumption of non-unit-level activities by products and other cost objects 7
Background image of page 7

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

View Full DocumentRight Arrow Icon
Product Diversity Proportion of each activity consumed by a product. Consumption Ratio --- Products consume overhead activities in systematically different proportions. 8
Background image of page 8
Example Calculate Consumption Ratios Regular Prime costs Setup hours $800 Number of moves Total $8,000 3 1 4 4 10 Deluxe Activity Usage Measures Units produced 10 100 110 $8,800 Direct labor hours 20 80 100 Machine hours 10 6 40 50 9
Background image of page 9

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

View Full DocumentRight Arrow Icon
Example Setting up equipment Assembly Total Activity Cost 500 $4,000 Activity Activity Cost Data $1,200 Moving goods 800 Machining 1,500 10
Background image of page 10
Example Calculate the consumption ratio for each product. Overhead Activity Setting up equipment 0.75 Deluxe Activity Driver Of the four hours spent setting up, three hours were spent setting up for the Deluxe Model. ¾ or 0.75 Regular 11
Background image of page 11

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

View Full DocumentRight Arrow Icon
Example Calculate the consumption ratio for each product. Overhead Activity Setting up equipment 0.75 Deluxe Activity Driver Only one of the four hours was spent on the Regular model Regular Setup hours 0.25 12
Background image of page 12
Example Calculate the consumption ratio for each product. Overhead Activity Setting up equipment 0.75 Deluxe Activity Driver 6 of the 10 moves were for the Deluxe model, 4 of the 10 were for the Regular model Regular Setup hours 0.25 Moving goods 0.60 0.40 # of moves 13
Background image of page 13

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

View Full DocumentRight Arrow Icon
Example Calculate the consumption ratio for each product. Overhead Activity
Background image of page 14
Image of page 15
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 05/04/2011 for the course ACCOUNTING 2102 taught by Professor Wurst during the Spring '11 term at Temple.

Page1 / 87

Mowen3e Ch07--revised - Chapter Seven Activity-Based...

This preview shows document pages 1 - 15. Sign up to view the full document.

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