CH05_HO1 - Managerial Accounting SW YOO CHAPTER 5...

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Managerial Accounting SW YOO 5-1 C HAPTER 5 A CTIVITY -B ASED C OSTING AND C OST M ANAGEMENT S YSTEMS The manufacturing environment is changing as a result of increased costs, reduced profits, and intensifying international competition. Many companies are moving to several powerful new management tolls, including activity-based costing (ABC) . The objective of activity-based costing (as a supplement to the traditional cost systems) is to understand overhead and the profitability of products and customers. 1. MOH Allocation Approaches: Levels of Complexity (1) Plantwide OH rate (2) Departmental OH rates (3) ABC (a.k.a. Transactions Costing): Costs are incurred in an organization due to significant activities. There fore, an ABC system measures and tracks the costs of significant activities over time, and directly applies to the products that cause the activities. 2. Designing an ABC System h DO EXERCISE! h (1) Identify and define activities and activity pools. Unit-level activities (e.g., machine-related and labor-related activities) Batch-level activities (e.g., purchase order processing, production order processing, setups, material-handling, and quality-inspection) Product-sustaining activities (e.g., product testing, parts inventory management, and product design) Facility-sustaining activities (e.g., cleaning executive office, proving computer network, arranging for loans, preparing annual reports, etc.) (2) Where possible, trace costs to activities and cost objects. (3) Assign costs to activity cost pools (First-Stage Allocation). (4) Calculate activity rates. (5) Assign costs to cost objects (Second-Stage Allocation). 3. Advantages of ABC a. Costing is improved under ABC, as the system identifies products that were overcosted or undercosted by traditional methods.
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This note was uploaded on 02/14/2012 for the course ECONOMY - taught by Professor Limbong during the Spring '11 term at Universitas Gadjah Mada.

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CH05_HO1 - Managerial Accounting SW YOO CHAPTER 5...

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