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1、Activity-Based Cost Management Systems055 - 2 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungIntroductionuJonathan Kellogg is the owner and CEO of Booth Motors.uBooth Motors is an automobile dealership with four other lines of business.1Used
2、 cars2Parts 3Service4Finance and insurance5 - 3 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungIntroductionuKellogg felt that as one of the largest auto dealerships in the Midwest, Booth should be earning much more than one percent pre-tax m
3、argin on sales.uThe existing accounting system allocates operating expenses to each department based on sales.5 - 4 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objectives1Understand how traditional cost systems, using only unit-l
4、evel drivers, distort product and customer costs.2Describe why factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products.5 - 5 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kapla
5、n, and YoungLearning Objectives3Design an activity-based cost system by linking resource costs to the activities performed and then to cost objects, such as products and customers.4Appreciate the role for choosing appropriate activity cost drivers when tracing activity costs to products and customer
6、s.5 - 6 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objectives5Use the information from a well-designed activity-based cost system to improve operations and make better decisions about products and customers.6Understand the impor
7、tance of measuring the practical capacity of resources and the cost of unused capacity.5 - 7 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objectives7Assign marketing, distribution, and selling expenses to customers.8Analyze custom
8、er profitability.9Appreciate the role for activity-based cost systems for service companies.10 Discuss the barriers for implementing activity-based cost systems and how these might be overcome.5 - 8 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and
9、YoungLearning Objective 1Understand how traditional cost systems, using only unit-level drivers, distort product and customer costs.5 - 9 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTraditional Manufacturing Costing SystemsuTraditionally,
10、 job-order and process costing systems have assigned direct labor and direct materials costs to products.uIndirect costs were accumulated as support department expenses.uThese expenses were allocated to production departments in a simple proportion.5 - 10 2001 Prentice Hall Business Publishing Manag
11、ement Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTraditional Manufacturing Costing SystemsuHistorically, Cooper Pen had been a low cost producer of BLUE and BLACK pens.uRecently, these product lines have expanded into two new products.uThe plants indirect expenses, about $180,000 per qu
12、arter, were aggregated at the plant level and allocated to products based on direct labor.5 - 11 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTraditional Manufacturing Costing SystemsuThe overhead burden rate was 300% of direct labor costs
13、.uThe controller of Cooper Pen Company wondered whether they should continue to de-emphasize their commodity products, and to keep introducing the new specialty colored pens.5 - 12 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTraditional M
14、anufacturing Costing Systems Production Return Sales Volume on SalesBlue 50,00013.6%Black 40,00013.3%Red 9,00014.8%Purple 1,00018.2%Total100,00013.5%5 - 13 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTraditional Manufacturing Costing Syst
15、emsuTraditional costing systems distort product costs.uThey use unit level drivers, such as direct labor dollars, for allocating production center expenses to products.5 - 14 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective
16、2Describe why factories producing a more varied and complex mix of products have higher costs than factories producing only a narrow range of products.5 - 15 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Young Simple and Complex FactoriesuA simp
17、le factory has little need for a cost system to calculate the cost of its product.uA complex factory requires many resources to support a highly varied product mix.uComplex factories require a cost accounting system to trace expenses to its various products.5 - 16 2001 Prentice Hall Business Publish
18、ing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Young Simple and Complex FactoriesuTraditional cost systems will under-estimate the cost of resources required for specialty, low-volume products.uThese systems will over-estimate the resource cost of high volume, standard products.uA
19、ctivity-based cost systems have been developed to eliminate this source of cost distortion.5 - 17 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective 3Design an activity-based cost system by linking resource costs to the activi
20、ties performed and then to cost objects, such as products and customers.5 - 18 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost Management SystemsuActivity-based cost-management systems trace indirect and support expenses a
21、ccurately to individual products, services, and customers.uABC systems use a simple two-stage approach similar to traditional cost systems.uHowever, instead of using cost centers for accumulating costs, it uses activities.5 - 19 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed.,
22、Atkinson, Banker, Kaplan, and YoungActivity-Based Cost Management SystemsuWhat do managers do in an activity-based management?uManagers use information collected by the ABC system at the activity level to identify promising opportunities for reducing costs in indirect and support activities.uThe con
23、troller of Cooper Pen Company developed an activity-based cost system.5 - 20 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost Management SystemsuHow are overhead rates determined under activity-based costing?1Identify the a
24、ctivities performed.2Determine the cost of performing each activity.3Identify a cost driver for each activity.5 - 21 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost Management Systems4Determine the number of units of the c
25、ost driver made available by the resources committed to each activity.5Divide the activity cost by the number of cost driver units made available to determine the activity overhead rate.5 - 22 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungA
26、ctivity-Based Cost Management SystemsuWhat is an activity dictionary?uIt is the list of the major activities performed by an organizations resources.5 - 23 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs to ActivitiesuABC alloca
27、tion procedures trace all overhead costs to activity cost pools.Run MachinesHandleProduction RunsSetupMachinesSupportProducts5 - 24 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs to ActivitiesuWhat are examples of production ac
28、tivities?Unit-RelatedBatch-RelatedProductSustainingFacilitySustaining5 - 25 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs to Activities Indirect Labor Computer ActivityActivity & 1/2 fringe Expense ExpenseHandleProduction Runs
29、 50% 80% $ 66,000SetupMachines 40% $ 33,600 Support Products 10% 20% $ 14,400Total Expense $84,000 $30,000 $114,0005 - 26 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Young Activity Depreciation Maintenance Energy RunMachines 100% 100% 100% Tot
30、alExpense $24,000 $12,000 $6,000Tracing Costs to Activities5 - 27 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective 4Appreciate the role for choosing appropriate activity cost drivers when tracing activity costs to products a
31、nd customers.5 - 28 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs From Activities to ProductsuActivity cost drivers identify the linkage between activities and cost objects.uWhat are some examples of cost objects?productsservi
32、cescustomers5 - 29 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs From Activities to ProductsuWhat is an activity cost driver?uIt is a unit of measurement for the level (or quantity) of the activity performed.uWhat is a cost dr
33、iver rate?uIt is a rate obtained by dividing the activity expense by the total quantity of the activity cost driver.5 - 30 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungTracing Costs From Activities to ProductsuWhat are some examples of cos
34、t drivers?HandleProduction RunsProduction RunsSupport ProductsNumber of ProductsRun MachinesMachine HoursSetup MachinesSetup Hours5 - 31 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Young Activity Activity Cost DriverActivity Expense Driver Rat
35、eHandle NumberProduction of Runs $440Runs $ 66,000 150Setup Number ofMachines $ 33,600 Setup Hours $63.88 526Support Number ofProducts $ 14,400 Products $3,600 4Tracing Costs From Activities to Products5 - 32 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Ka
36、plan, and Young Activity Activity Cost Driver Activity Expense Driver RateRun Number ofMachines $42,000 Machine $4.20 Hours 10,000Tracing Costs From Activities to Products5 - 33 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Young Driver Activity
37、 Cost Blue Activity Rate Driver Quantity TotalHandleProduction $440 50 $22,000RunsSetupMachines $63.88 200 $12,776 SupportProducts $3,600 1 $3,600 Tracing Costs From Activities to Products5 - 34 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and Youn
38、g Driver Activity Cost Blue Activity Rate Driver Quantity TotalRunMachines $4.20 5,000 $21,000 Total Activity Expense Blue = $56,376Tracing Costs From Activities to Products5 - 35 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objec
39、tive 5Use the information from a well-designed activity-based cost system to improve operations and make better decisions about products and customers.5 - 36 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungProduct Profitability BlueOperatingI
40、ncome$48,624BlackOperatingIncome$40.806RedOperatingIncome (Loss)($18,414)PurpleOperatingIncome (Loss)($9,906)5 - 37 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungProduct ProfitabilityuWhat is a bill of activities?uIt is the set of activitie
41、s and their costs associated with individual products.uWhat is strategic activity-based management?uABM involves decisions on pricing, distribution, product design, and minimum order sizes so that loss products can become profitable.5 - 38 2001 Prentice Hall Business Publishing Management Accounting
42、, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuActivity cost drivers are the central innovation of activity-based cost systems.uThey are also the most costly aspects of ABC systems.uThe selection of an activity cost driver reflects a subjective trade-off between accuracy a
43、nd the cost of measurement.5 - 39 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuABC system designers can choose from three different types of activity cost drivers.1Transaction2Duration3Intensity5 - 40 2001 Prent
44、ice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuTransaction drivers count how often an activity is performed.uWhat are some examples?number of setupsnumber of receiptsnumber of products supported5 - 41 2001 Prentice Hall Bus
45、iness Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuDuration drivers represent the amount of time required to perform an activity.uWhat are some examples?setup hoursinspection hoursdirect labor hours5 - 42 2001 Prentice Hall Business Publis
46、hing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuIntensity drivers directly charge for the resources used each time an activity is performed. uWhat are some examples?actual timespecific resources committeduIntensity drivers may be simulated with a w
47、eighted index approach.5 - 43 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungActivity-Based Cost systemsuWhat is the goal of a properly constructed ABC system?uThe goal is to have a cost system that balances the cost of errors made from inac
48、curate estimates with the cost of measurement.5 - 44 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective 6Understand the importance of measuring the practical capacity of resources and the cost of unused capacity.5 - 45 2001 Pr
49、entice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungMeasuring the Cost of Resource CapacityuPractical capacity represents the maximum output that could be handled efficiently.uThe activity cost driver rate should reflect the underlying efficiency of the
50、 process.5 - 46 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungMeasuring the Cost of Resource CapacityuHow should the activity cost driver rate be computed?uThe numerator represents the cost of supplying resource capacity to do work.uThe den
51、ominator should match the numerator by representing the quantity of work the resources can perform.5 - 47 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungMeasuring the Cost of Resource CapacityuWhat is the cost of unused capacity?uIt is the c
52、ost of capacity available but not utilized. uThere are two ways for organizations to actively manage unused capacity.1Increase the volume of business.2Reduce the supply of unused resources.5 - 48 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and You
53、ngLearning Objective 7Assign marketing, distribution, and selling expenses to customers.5 - 49 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungMarketing, Selling, and Distribution ExpensesuThe costs of marketing, selling, and distribution exp
54、enses have been increasing rapidly.uMany of these expenses do not relate to individual products or product-lines.uThese expenses are associated with individual customers, market segments, and distribution channels.5 - 50 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson
55、, Banker, Kaplan, and YoungMarketing, Selling, and Distribution ExpensesuWhat are examples of marketing, selling, and distribution activities?Travel to CustomersDistribute SalesCatalogServiceCustomersProvide Marketing and Technical SupportWarehouse Inventoryfor Customers5 - 51 2001 Prentice Hall Bus
56、iness Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungMarketing, Selling, and Distribution ExpensesuWhat are examples of activity cost drivers? Actual ExpendituresNumber of Mailings Time Spent on CustomersQuantity of Inventoryand space required5 - 52 2001 Prentice Hall
57、Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective 8Analyze customer profitability.5 - 53 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungCustomer ProfitabilityAggressive:Leverage their b
58、uying powerLow price, lots of customized serviceCostly to serve, pay top dollarPassive:Product is crucialGood supplier match Price-sensitive and fewspecial demandsTypes of CustomersMoreprofitablecustomersCost to ServeHiLowNet ABC Margin RealizedProfits5 - 54 2001 Prentice Hall Business Publishing Ma
59、nagement Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungLearning Objective 9Appreciate the role for activity-based cost systems for service companies.5 - 55 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungService CompaniesuWhy are se
60、rvice companies ideal candidates for activity-based costing?uThe majority of their costs are indirect and appear to be fixed.uThe variable cost is essentially zero.5 - 56 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungService CompaniesuWhy d
61、o service companies need to identify the differential profitability of individual customers?uBecause the variation in demand for organizational resources is much more customer-driven than in manufacturing organizations.5 - 57 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atk
62、inson, Banker, Kaplan, and YoungLearning Objective 10Discuss the barriers for implementing activity-based cost systems and how these might be overcome.5 - 58 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungBarriers to Implementing ABCuWhat ar
63、e some of the barriers to implementing ABC systems?uLack of clear business purposeuLack of senior management commitmentuDelegating the project to consultantsuPoor ABC model designuIndividual and organizational resistance to change5 - 59 2001 Prentice Hall Business Publishing Management Accounting, 3
64、rd ed., Atkinson, Banker, Kaplan, and YoungConclusionuJonathan Kellogg and his controller developed an activity-based cost model of Booth Motors.uThey identified activities for three of the product lines.New Vehicle DepartmentFinance & InsuranceService5 - 60 2001 Prentice Hall Business Publishing Ma
65、nagement Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungConclusionuWhat did the product line analysis show?uProfits from financing and insuring new and used cars accounted for nearly 50% of total dealer profitability.uThe profitable car line had the lowest average days on lot.uSeemingly, most popular car lines were unprofitable.5 - 61 2001 Prentice Hall Business Publishing Management Accounting, 3rd ed., Atkinson, Banker, Kaplan, and YoungEnd of Chapter 5
