Estimate a cost function: TC = FC + UVC*X (X - activity) --should be evaluated : economic plausibility, goodness of fit (co-efficient of determination – R 平方 ) Estimate the ‘line of best fit’ (an object technique, use all the available data points) Seminar 3 Issues in indirect cost allocation and activity-based costing Indirect cost allocation: most coarse 粗糙的 method : volume-based/traditional costing often all indirect costs aggregated in one cost-pool cost drivers often machine or labour hours (or costs) often used for inventory valuation : − Calculate (at any point in time) the value of inventory − Calculate how much (in a given time period) has been transferred from inventory and other balance sheet positions to COGS Two main causes of product cost distortions: Product volume diversity: cost distortions occur when a company produces at least one high volume product and at least one low volume product. (low volume – little overhead) Product complexity: cost distortions from product differences occur. when there is variation in product complexity . (with complex design – require more engineering work, more materials and related support) (relatively correlate to each other, high complex – low volume) most refined 精炼的 method: activity-based costing
several cost pools, each cost pool has one cost driver system based on logic and causality 因果关系 ABC can provide better information about the economic costs of a product. Specifically useful: − for product mix and pricing decisions − If overhead costs are significant − there is product diversity Costs captures the ‘causal link’ between activities generated by the different products, and the resources consumed by those activities. Provide greater detail of how an organization uses its resources and facilitate better resource/cost management The two main problems of traditional costing: Product cost distortions and cross subsidizations 交叉补贴 a. Results in undercosting and overcosting * undercosting : a product consumes a relatively high level of resources but is reported to have a relatively low total cost b. The problem with the use of volume related measures * indirect resources not consumed in proportion to volume of products produced (production scheduling, material handling), driven by product related characteristics such as size or complexity. ABC solves this problem by separating overhead costs into different cost categories referred to as activity cost pools. Cost hierarchy: a categorization of costs into different cost pools on the basis of the different types of cost drivers (cost-allocation bases) or different degrees of difficulty in determining cause-and-effect relationships . Unit level – batch level 一批– product level – facility level Unit- level costs are resources used on activities performed on volume or units (machine operation costs), are allocated based on the quantity of each product produced.
Batch-level costs are resources sacrificed on activities that are related
You've reached the end of your free preview.
Want to read all 19 pages?
- One '14