Activity-Based Costing
1
Volume Activit
y
-vs.
-Based
y
Based
2
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Activity-Based Costing Volume Activity- vs., Lecture notes of Cost Accounting
ABC differs from traditional cost accounting in three ways. Traditional cost systems usually rely on volume measures such as direct labor hours and/or machine ...
Typology: Lecture notes
2021/2022
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Activity-Based Costing
1
Volume vs. Activity-
-Based
y
Based
How Costs are Treated Under ABC
ABC differs from traditional cost accounting in three ways.ABC differs from traditional cost accounting in three ways.
Manufacturing costs
Nonmanufacturing costs
Traditional ABC product costing product costing
ABC assigns both types of costs to products. 3
How Costs are Treated Under ABC
ABC differs from traditional cost accounting in three ways.ABC differs from traditional cost accounting in three ways.
Manufacturing costs
Nonmanufacturing costs
All Some
Traditional ABC product costing product costing
ABC does not assign all manufacturing costs to products.
How Costs are Treated Under ABC
An event that causes the Activity consumption of overhead resources.
Activity Cost Pool
A “cost bucket” in which costs related to a particular Cost Pool activity measure areactivity measure are accumulated.
$ $
$
7
How Costs are Treated Under ABC
Activity
The term cost driver is
also used to refer to
Measure
also used to refer to
an activity measure.
An allocation base
in an activity-based
costing system.
How Costs are Treated Under ABC
TTwo common types of activity measures: t f ti it
Transaction Duration driver driver
Simple count
of the number of
A measure
of the amount
times an activity
occurs.
of time needed
for an activity.
9
How Costs are Treated Under ABC
ABC definesABC defines five levels of activityfive levels of activityfive levels of activityfive levels of activity that largely do not relatethat largely do not relate to the volume of unitsto the volume of unitsto the volume of unitsto the volume of units produced.produced.
Traditional cost systems usually rely on volume
measures such as direct labor hours and/or machine
hours to allocate all overhead costs to products.
Activity-Based Costing: Two Stages
DirectDirect Direct Shipping Materials
Direct Labor
Shipping Costs Overhead Costs
FiFi rst-Stage Allocationt St All ti
OrderOrder SizeSize
CustomerCustomer OrdersOrders
ProductProduct DesignDesign
CustomerCustomer RelationsRelations OtherOther
Cost Objects:Cost Objects:Cost Objects:Cost Objects: Products, Customer Orders, CustomersProducts, Customer Orders, Customers 13
Activity-Based Costing: Two Stages
DirectDirect Direct Shipping Materials
Direct Labor
Shipping Costs Overhead Costs
FiFi rst-Stage Allocationt St All ti
CustomerCustomer OrdersOrders
OrderOrder SizeSize
CustomerCustomer RelationsRelations OtherOther
ProductProduct DesignDesign
SecondSecond--Stage AllocationsStage Allocations
$/O d $/D i $/MH $/C t
Cost Objects:Cost Objects:
$/Order $/Design $/MH $/Customer
Cost Objects:Cost Objects: Products, Customer Orders, CustomersProducts, Customer Orders, Customers Unallocated
15^1
19^6
21^2