Activity-Based Costing and Other Cost Management Tools：作业成本法和其他成本管理工具活动.ppt

Activity-Based Costing and Other Cost Management Tools,Chapter 25,David, Matt, and Marc: Total expenses = $900,Cost allocated = $300 per person,Rent and Utilities $570 Cable TV 50 High speed Internet access 40 Groceries 240 Total $900,Refining Cost Systems,Refining Cost Systems,More Refined Allocation,David Matt Marc Total Rent and Utilities $190 $190 $190 $570 Cable TV 25 25 50 Internet access 40 40 Groceries 80 160 240 Total costs allocated $215 $310 $375 $900 Original cost allocation 300 300 300 900 Difference $(85) $ 10 $ 75 $ 0,Sharpening the Focus: From Business Functions to Activities,PANEL ACompanywide Business Functions in the Value Chain R&D Design Production Marketing Distribution Customer Service,PANEL BProduction Departments/Product Lines Servers Notebook Computers Desktop Computers,Inventoriable costs for financial reporting,Inventoriable costs for financial reporting,Sharpening the Focus: From Business Functions to Activities,PANEL CActivities for Desktop Product Line 1. Kittingpreparing all items for assembly 2. Motherboard preparationsnapping in CPU and memory modules 3. Assembly into chassis 4. Software downloading 5. Testing 6. Boxing,Inventoriable costs for financial reporting,Describe and develop activity-based costs (ABC).,Objective 1,Example of Activities and Cost Drivers:,Activities: Material purchasing Material handling Production scheduling Quality inspections Photocopying Warranty service,Cost Drivers: No. of purchase orders No. of parts No. of batches No. of inspections No. of pages copied No. of service calls,Activity-Based Costing,Traditional versus Activity-Based Costing Systems,Chemtech produces large quantities of “commodity” chemicals. It also manufactures small quantities of specialty chemicals. In the past, Chemtechs manufacturing department has used direct labor hours as its single allocation base at a 200% rate.,Traditional versus Activity-Based Costing Systems,Among its many products, the department produces Aldehyde (a commodity chemical used by producing plastics) and. Phenylephrine Hydrochloride (PH), which is a specialty chemical. A single customer uses PH in manufacturing blood-pressure medications.,Traditional versus Activity-Based Costing Systems,Chemical Manufacturing Department Overhead,Direct Labor Cost,Chemical A,Chemical B,Chemical C,Departmental Indirect Cost Pool,Cost Allocation Base,Product Cost Objects,Traditional versus Activity-Based Costing Systems,Chemical Manufacturing Department Overhead,No. of Machine Hours,Chemical A,Chemical B,Chemical C,Departmental Indirect Cost Pool,Cost Allocation Base,Product Cost Objects,No. of Samples Taken,No. of Batches,Processing,Mixing,Testing,Activity Indirect Cost Pool,Chemtech Traditional Cost System Aldehyde PH Sale price per pound $10 $70 Less: manufacturing cost per pound Direct materials 5 20 Direct labor 1 10 Manufacturing overhead 2 20 Gross profit per pound $ 2 $20,Traditional versus Activity-Based Costing Systems,Traditional versus Activity-Based Costing Systems,Assume that the company produced 7,000 pounds of Aldehyde and 5 pounds of PH. What is the total labor cost per product? 7,000 pounds $1 = $7,000 (Aldehyde) 5 pounds $10 = $50 (PH) What is the total manufacturing overhead allocated to each product?,Chemtech assigns 140 times as much overhead to Aldehyde as to PH.,Traditional versus Activity-Based Costing Systems,$7,000 200% = $14,000 to Aldehyde $50 200% = $100 to PH,Activity-Based Costing System,Identify activities.,Mixing Processing Testing,Estimate the total indirect costs of each activity.,Labor $150,000 Depreciation 200,000 Other 250,000 Total $600,000,Step 1,Step 2,Activity-Based Costing System,Identify the primary cost driver for each activitys indirect costs.,(1) (2) (3) Activity Estimated Costs Cost Driver Mixing $600,000 # of batches Processing $300,000 # of hours (MH) Testing $600,000 # samples,Step 3,Activity-Based Costing System,Estimate the total quantity of each allocation base.,(1) (4) Activity Estimated Quantity of Cost Driver Mixing 4,000 batches Processing 5,000 machine hours (MH) Testing 3,000 samples,Step 4,Activity-Based Costing System,Compute the allocation rate for each activity.,(1) (5) Activity Cost Allocation Rate Mixing $600,000 4,000 = $150/batch Processing $300,000 5,000 = $60/MH Testing $600,000 3,000 = $200/sample,Step 5,Activity-Based Costing System,Obtain the actual quantity of each allocation base used by each product.,During the year, Chemtech produced 60 batches of Aldehyde and 1 batch of PH.,The remaining batches consist of Chemtechs other chemicals.,Step 6,Activity-Based Costing System,Allocate the costs to each product.,Mixing Cost Allocation: Aldehyde: 60 batches $150 per batch = $9,000 PH: 1 batch $150 per batch = $150,Step 7,Activity-Based Costing System,The ABC system allocates 29 times as much overhead to Aldehyde as to PH.,Activity Cost Driver Units Cost Allocated to: Used By: Aldehyde PH Aldehyde PH Mixing 60 batches 1 batch $ 9,000 $150 Processing 30 MH 2 MH 1,830* 120 Testing 14 samples 1 sample 2,800 200 Total $13,630 $470 *30 MH $60 per MH = $1,830,Cost/pound Traditional ABC (Overhead) System System Aldehyde $ 2.00 $ 1.95 PH $20.00 $94.00,Activity-Based Costing System,What is the overhead cost per pound? Aldehyde: $13,630 7,000 = $1.95 PH: $470 5 = $94,Aldehyde PH Sale price per pound $10.00 $ 70.00 Less: manufacturing cost per pound Direct materials 5.00 20.00 Direct labor 1.00 10.00 Manufacturing overhead 1.95 94.00 Gross profit per pound $ 2.05 $(54.00),Activity-Based Costing System,Chemtech Gross Profit per Pound,Use ABC data and activity-based management (ABM) to make business decisions.,Objective 2,Pricing and Product Mix Decisions,Aldehyde PH Sale price per pound $10.00 $70.00 Less: manufacturing cost per pound 8.00 50.00 Gross profit per pound $ 2.00 $20.00,Original Cost System,Pricing and Product Mix Decisions,Aldehyde PH Sale price per pound $10.00 $70.00 Less: manufacturing cost per pound 7.95 124.00 Gross profit per pound $ 2.05 $(54.00),Activity-Based Cost System,Pricing and Product Mix Decisions,Chemtech has three alternatives: Cut the cost of PH. Increase the sale price of PH. Drop the PH product.,Use ABM and value engineering to achieve target costs for target pricing.,Objective 3,Cost Reduction Decisions,Value engineering means systematically evaluating activities in an effort to reduce costs while satisfying customer needs.,Target Pricing Target sale price (based on market research) Desired profit = Target cost,Traditional Cost-Based Pricing Full product cost (from entire value chain) Desired profit = Sale price,Target Pricing versus Traditional Cost-Based Pricing,Target Pricing versus Traditional Cost-Based Pricing,Assume that the market price of aldehyde is likely to fall to $9.50 per pound. The desired target profit is 20% of the sale price. What is the target cost? $9.50 $1.90 = $7.60,Target Pricing versus Traditional Cost-Based Pricing,Current Costs Manufacturing $7.95 per pound Nonmanufacturing costs = $0.50 per pound,$7.60 $8.45 = $(0.85),Current costs must be reduced by $0.85 per pound.,Decide when ABC is most likely to pass the cost-benefit test.,Objective 4,The Cost-Benefit Test,ABCs benefits are higher when. the company produces many different products that use different amounts of resources. the company has high overhead costs. the company produces high volumes of some products, and low volumes of other products.,The Cost-Benefit Test,The costs of adopting ABC are lower when the company has. accounting and information system expertise to develop the system. information technology (bar coding, optical scanning) to record cost driver data.,Managers dont understand costs and profits.,The cost system is outdated.,Signs That the Cost System May Be Broken,Compare a traditional production system to a just-in-time (JIT) production system.,Objective 5,Traditional versus Just-in-Time Production Systems,Why do traditional businesses keep large inventories?,To protect against poor quality,Long setup times,Uncertainty,Traditional versus Just-in-Time Production Systems,Building A,Cutting Department,work in process,Shaping Department,work in process,Grinding Department,work in process,Smoothing Department,finished product,Traditional versus Just-in-Time Production Systems,Building A,cutting machine,shaping machine,smoothing machine,finished product,grinding machine,Traditional versus Just-in-Time Production Systems,Traditional Production Systems: Machines are arranged by functions. Production workers operate a single machine. Large batches are produced. There are many suppliers .,Just-in-Time Production Systems: Machines are arranged in operational sequence. Machine setup times are short. Workers are cross-trained and perform many tasks. Small batches are produced. There are fewer suppliers who are well coordinated.,Just-in-Time Production Systems,Companies that follow JIT have several common characteristics: sequential arrangement of production activities reduction of setup times cross-training of employees scheduling production as needed by use of a “demand pull” system,Record manufacturing costs for a just-in-time costing system.,Objective 6,Just-in-Time Costing.,is sometimes called “backflush costing.” It is a standard costing system that begins with output completed and then assigns manufacturing cost to units sold and to inventories.,JIT Cost,Just-in-Time Costing Example,Big Bear Company converts silicon water into integrated circuits used for various purposes. Big Bear uses only two inventory accounts: Raw and In Process (RIP) Inventory (which is a combination of direct materials and work in process) Finished Goods Inventory,Just-in-Time Costing Example,Big Bear had the following inventory values on June 30: Raw and in process: $100,000 Finished goods: $800,000 During July, the following took place: Direct materials of $3,030,000 were purchased. $18,200,000 of actual conversion costs were incurred.,Just-in-Time Costing Example,The company produced 3,000,000 units. The standard cost per unit was $7.00 ($1.00 for direct materials and $6.00 for conversion costs). The company sold 2,950,000 units. What are the journal entries?,Just-in-Time Costing Example,Raw and In Process Inventory 3,030,000 Accounts Payable 3,030,000 To record purchases of raw materials,Conversion Costs 18,200,000 Various Accounts 18,200,000 To record various conversion costs,Finished Goods Inventory 21,000,000 RIP Inventory 3,000,000 Conversion Costs 18,000,000 Completed units,Cost of Goods Sold 20,650,000 Finished Goods Inventory 20,650,000 To record 2,950,000 units sold,Just-in-Time Costing Example,Just-in-Time Costing Example,RIP Inventory,Conversion Costs,Finished Goods Inventory,Cost of Goods Sold,Bal. 100,000 3,030,000 3,000,000 Bal. 130,000,18,200,000 18,000,000,Bal. 800,000 21,000,000 20,650,000 Bal. 1,150,000,20,650,000,Contrast the four types of quality costs and use these costs to make decisions.,Objective 7,Total Quality Management,The goal of total quality ma