Kế toán, kiểm toán - Chapter 3: Activity - Based management

1Activity-Based ManagementCHAPTER 3© 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. PowerPoint Presentation by LuAnn BeanProfessor of AccountingFlorida Institute of TechnologyManagerial Accounting 11E Maher/Stickney/Weil2CHAPTER GOALThis chapter shows how ABC and ABM rest on the premise that: Products require activities and activities consume resources. For products to be competitive, managers must knowActivities for producing goods, servicesCost of activitiesABC analyses ways to allocate indirect costs while ABM uses analysis to manage costs.☼☼3How do ABC and ABM work?ABC provides information about profitability in mix of activities, productsABM encourages managers to use information to become low-cost producer or seller.LO 14ABM ACTIVITY ANALYSISChart, start to finish, activities used to complete product or serviceClassify activities as value-added or non-value-addedEliminate non-value-added activitiesContinuously improve, reevaluate efficiency of value-added activities or replace with more efficient activitiesLO 15Research and DevelopmentDesignProductionMarketingDistributionCustomer ServiceOrganization Strategy and AdministrationCustomerValue ChainEXHIBIT 3.1LO 16Research and DevelopmentDesignProductionMarketingDistributionCustomer ServiceOrganization Strategy and AdministrationCustomerABM analyses and evaluates every step of the Value Chain. Value ChainEXHIBIT 3.1 & 3.2LO 17NON-VALUE-ADDED COSTS: DefinitionAre costs of activities that the company can eliminate without reducing product quality, performance, or value.LO 18Research and DevelopmentDesignProductionMarketingDistributionCustomer ServiceOrganization Strategy and AdministrationCustomerABM analyses and evaluates every step of the Value Chain. Value ChainEXHIBIT 3.1 & 3.2LO 1Eliminate9ABC ANALYSISPotential candidates for elimination because they do not add value areStorageMoving: parts, materials, etc. around the factory floorIdle timeOther production process componentsLO 110EXAMPLEYou and a friend go to dinner. You order tea ($2.50) and a salad ($8.00). Your friend orders appetizer, expensive entree, and dessert. The total bill is $60. Traditional cost allocation leads to splitting the bill, $30 apiece.What does activity analysis suggest each of you should pay?LO 2YOU: $ 10.50 + tax & tipFRIEND: $49.50 + tax & tip11ABC COST-BENEFITApplying ABC has a cost of information gathering. Managers must take cost-benefit into account. Managers reject activity analysis, staying with traditional methods that are simpler.Smaller companies don’t need sophisticated information systemsManagers use ABC because information helps them be competitiveComplex organizations facing heavy competition use ABCManagers use ABC in special circumstancesLO 212COST POOLSThree major types of cost pools:The “plant” (traditional)Sets one indirect cost allocation rate plantwideThe department (traditional)Sets indirect cost allocation rates for each departmentThe activity center (ABC)Determines cost pool for each activityLO 213ABC STEPS TO FOLLOWAccountants required to follow four steps:Identify activities that consume resources; assign costs to those activities. Example: purchasing materialsIdentify cost drivers for each activity.Cost driver for purchasing materials: # of ordersCompute a cost rate per cost driver unit.Cost per orderAssign costs to products.(Cost per order) X (number of purchase orders)LO 414COST DRIVER: DefinitionIs a factor that causes, “drives,” an activity’s costs.LO 415EXAMPLE: Cost DriversLO 4Machine hoursComputer timeLabor hours, costItems produced, soldPounds of material handledClients servedPages typedFlight hoursMachine setupsNumber of surgeriesPurchase ordersScrap/rework ordersQuality inspectionsHours of testing time# of parts in product# of different clientsMiles drivenWhich cost drivers listed below would a law firm use?EXHIBIT 3.316EXAMPLE: Cost DriversLO 4Machine hoursComputer timeLabor hours, costItems produced, soldPounds of material handledClients servedPages typedFlight hoursMachine setupsNumber of surgeriesPurchase ordersScrap/rework ordersQuality inspectionsHours of testing time# of parts in product# of different clientsMiles drivenWhich cost drivers listed below would a law firm use?EXHIBIT 3.317How do managers decide which cost driver to use?Typically, managers choose a cost driver that causes the cost.LO 418COST RATE EQUATIONLO 4Predetermined indirect cost rate = Estimated Indirect Cost ÷ Estimated Volume of Allocation Base19EXAMPLE: Traditional Costing LO 4Ciudad Juarez factory makes 2 products: mountain bikes and racing bikes. 1,000 mountain bikes and 200 racing bikes will be produced. Direct materials include Frames: $100 per mountain bikes and $200 per racing bikeDirect labor: $30 per mountain bike and $60 per racing bikeOverhead, allocated at 5 times direct laborWhat would be the cost of each bike under traditional costing?Continued20EXAMPLE: Traditional Costing LO 4ContinuedMountain BikesRacing BikesDirect materials$100$200Direct Labor3060Manufacturing overhead1,2150300 Total cost per bike$280$5601 5 * DL2 ($150 * 1,000 + $300 * 200) = $210,00021EXAMPLE: ABC Costing LO 4Ciudad Juarez factory makes 2 products: mountain bikes and racing bikes. 1,000 mountain bikes and 200 racing bikes will be produced. Direct materials include Frames: $100 per mountain bikes and $200 per racing bikeDirect labor: $30 per mountain bike and $60 per racing bikeOverhead, allocated by activity costsWhat would be the cost of each bike under ABC costing?Continued22EXAMPLE: ABC Costing LO 4ActivityRateCost driver unitsCost AllocatedCost driver unitsCost AllocatedPurchasing$20/frame1,000 frames$ 20,0001,000 frames$ 4,000Setups$2,000/setup13 setups26,00013 setups60,000Inspections$100/inspect hr200 hours20,000200 hours20,000Running machines$30/hour1,500 hrs45,0001,500 hrs15,000 Total$111,000$99,000Mountain BikeRacing BikeMountain Bike = $111,000 / 1,000 = $111Racing Bike = $99,000 / 200 = $495EXHIBIT 3.523COST HIERARCHY: DefinitionCategorizes costs so changes in one cost can be examined for its effects on other cost categories. LO 624Activity CategoryExampleCapacitySize limitationsAircraft depreciationCustomerNeedsSpecial promotionsProductProduction needsRoute schedulesBatchBatchFuel, baggage handlingUnitVariable costsCredit card feesEXAMPLE: Hierarchy of CostsLO 625RESOURCES USED: DefinitionAre measured by ABC.LO 726UNUSED RESOURCESKnowing the difference between resources used and supplied helps managers to identify unused capacity. Finding unused capacity helps managers reduce or use it.LO 727LO 7Imprinting a hierarchy of costs on ABM statements helps managers understand what costs can be reduced or better used. EXHIBIT 3.9Capacity-sustaining costs will have unused resources unless operating at full capacity.28End of CHAPTER 3