Traditional cost systems usually rely Traditional cost systems usually rely on volume measures such as direct labor on volume measures such as direct labor. hours and/or machine hours to[r]
(1)PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA Charles W Caldwell, D.B.A., CMA Jon A Booker, Ph.D., CPA, CIA Cynthia J Rooney, Ph.D., CPA
Copyright © 2014 by The McGraw-Hill Companies, Inc All rights reserved.
Activity-Based Costing:
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Activity–Based Costing (ABC)
ABC is designed to provide managers with
cost information for strategic and other
decisions that potentially affect
capacity, and therefore, affect “fixed”
as well as variable costs.
ABC is a
good supplement
to our traditional cost system
(3)Activity–Based Costing
ABC differs from traditional cost accounting in three ways ABC differs from traditional cost accounting in three ways
Manufacturing costs
ABC assigns both types of costs to products
Traditional
Traditional
product costing
product costing
ABC
ABC
product costing
product costing
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How Costs are Treated Under Activity–Based Costing
ABC does not assign all manufacturing costs to products.
A
ll Most,
but
not all Som
e
ABC differs from traditional cost accounting in three ways ABC differs from traditional cost accounting in three ways
Manufacturing costs
Nonmanufacturing costs
Traditional
Traditional
product costing
product costing
ABC
ABC
product costing
(5)Activity–Based Costing Plantwide Overhead Rate Plantwide Overhead Rate Departmental Overhead Rates Departmental Overhead Rates Activity–Based Costing Activity–Based Costing
Number of cost pools
L e ve l o f co m p le xi ty
ABC uses more cost pools.
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How Costs are Treated Under Activity–Based Costing
Each ABC cost pool has its own unique measure of activity.
Each ABC cost pool has its own unique measure of activity.
Traditional cost systems usually rely Traditional cost systems usually rely on volume measures such as direct labor on volume measures such as direct labor
hours and/or machine hours to allocate hours and/or machine hours to allocate
all overhead costs to products. all overhead costs to products. Traditional cost systems usually rely
Traditional cost systems usually rely
on volume measures such as direct labor
on volume measures such as direct labor
hours and/or machine hours to allocate
hours and/or machine hours to allocate
all overhead costs to products.
all overhead costs to products.
ABC differs from traditional cost accounting in three ways ABC differs from traditional cost accounting in three ways
(7)Activity consumption of overhead An event that causes the resources
Activity Cost Pool
A “cost bucket” in which costs related to a single
activity measure are accumulated
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