Transcription of Volume vs. Activity- -Based Based - csus.edu
1 activity -Based Costs are Treated Under ABCABC differs from traditional cost accounting in three differs from traditional cost accounting in three costingproduct costing ABC assigns both types of costs to Costs are Treated Under ABCABC differs from traditional cost accounting in three differs from traditional cost accounting in three costingproduct costing ABC does not assign all manufacturing costs to Costs are Treated Under ABCABC differs from traditional cost accounting in three differs from traditional cost accounting in three BasedCostingmplexDepartmentalOverheadRat esl of coPlantwideOverheadLevelRateNumber of cost poolsp ABC uses more cost Costs are Treated Under ABCABC differs from traditional cost accounting in three differs from traditional cost accounting in three ABC cost pool has itsown unique measure of cost systems usually relyTraditional cost systems usually relyon Volume measures such as direct laborhours and/or machine hours to allocatehours and/or machine hours to allocateall overhead costs to products.
2 ABC uses more cost Costs are Treated Under ABCAn event that causes the Activityconsumption of overhead PoolA cost bucket in which costs related to a particular activity measure areCost Poolactivity measure areaccumulated.$$$$$$$$$7 How Costs are Treated Under ABCA ctivityThe term cost driver is also used to refer toMeasurealso used to refer toan activity allocation basein an Activity- basedcosting Costs are Treated Under ABCT tftiitTwo common types of activity measures:TransactionDurationdriverdriver Simple countof the number ofA measureof the amounttimes an time neededfor an Costs are Treated Under ABCABC definesABC definesfive levels of activityfive levels of activityfive levels of activityfive levels of activitythat largely do not relatethat largely do not relateto the Volume of unitsto the Volume of unitsto the Volume of unitsto the Volume of cost systems usually rely on volumemeasures such as direct labor hours and/or machinehours to allocate all overhead costs to Costs are Treated Under ABCUnitUnitLevelLevelBatchBatchLevelLeve lUnitUnit--LevelLevelActivityActivityBat chBatch--LevelLevelActivityActivityManuf acturingManufacturingcompanies t picall combinecompanies t picall combinecompanies typicallycombinecompanies
3 Typicallycombinetheir activities into fivetheir activities into costing : Two StagesDirectDirectShippingDirectMaterial sDirectLaborShippingCostsOverhead CostsTdTdTdTracedTracedTracedCost Objects:Cost Objects:Cost Objects:Cost Objects:Products, Customer Orders, CustomersProducts, Customer Orders, Customers12 activity -Based costing : Two StagesDirectDirectShippingDirectMaterial sDirectLaborShippingCostsOverhead CostsFi tStAlltiFirst-StageAllocationOrderOrderS izeSizeCustomerCustomerOrdersOrdersProdu ctProductDesignDesignCustomerCustomerRel ationsRelationsOtherOtherCost Objects:Cost Objects:Cost Objects:Cost Objects:Products, Customer Orders, CustomersProducts, Customer Orders, Customers13 activity -Based costing : Two StagesDirectDirectShippingDirectMaterial sDirectLaborShippingCostsOverhead CostsFi tStAlltiFirst-StageAllocationCustomerCus tomerOrdersOrdersOrderOrderSizeSizeCusto merCustomerRelationsRelationsOtherOtherP roductProductDesignDesignSecondSecond--S tage AllocationsStage Allocations$/O d$/D i$/MH$/C tCost Objects:Cost Objects:$/Order$/Design$/MH$/CustomerCos t Objects:Cost Objects:Products, Customer Orders, CustomersProducts, Customer Orders, CustomersUnallocated14115316417518619720 221822 activity -Based costing and External ReportingMost companies do not use ABCfor external reporting because.
4 Pg1. External reports are less detailed than internal It may be difficult to make changes to the company s accounting ABC does not conform to may be suspect of the subjective may be suspect of the subjective allocationprocess Based on interviews with LimitationsSubstantial resourcesrequired to implementResistance tounfamiliar numbersand to fullyallocate all costsPotentialmisinterpretation ofto not conform toGAAP. Two costingsystems may be
