Preparing Presentation: Activity-Based Costing

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Preparing Presentation: Activity-Based Costing By David Fukuda

What Will Be Covered ABC Defined Nuts and Bolts How It Works A Real World Example Summary

ABC Defined History Traditional costing Engineering Decisions Pricing Product Mix

ABC Defined-Continued Activity-construct costing centers in light of work exercises and encourages basic leadership forms by administrators.

ABC Defined-Continued Transition to ABC Cost Structure Product Diversity

Brainstorming Develop a rundown of real costs that exist inside your firm. Build up a rundown of exercises that make up these expenses.

Brainstorming-Continued Discuss how directors perhaps ready to enhance their basic leadership capacities by survey these significant expenses as exercises.

Nuts & Bolts Goal: Use conventional costing data to "give more engaged information to enhanced choice support." Costs must be doled out to the suitable classes.

Nuts & Bolts-Continued Unit-Level Costs Examples: gear devaluation, repairs, upkeep, and vitality costs. Group Level Costs Examples: machine set-up expenses, setting, orders, getting materials, and paying providers.

Nuts & Bolts-Continued Product-Level Costs Examples: plan costs, designing expenses. Office Level Costs Examples: president's pay, building security.

Nuts & Bolts-Continued Cost Drivers-exercises related with caused costs Cost Pools-joined costs influenced by similar exercises Cost Rates = add up to costs/# of action units

How It Works ABC necessities Clear Goals Management Support Committed Resources Priority Appropriate Training

How It Works-Continued Process Group overhead expenses into unit-, clump , item , and office level things. Distinguish cost drivers for every thing. Things are put into the fitting cost pools.

How It Works-Continued Process (proceeded) Within each cost pool, cost rates per action are resolved. Computed cost rates are duplicated by the quantity of item or administration units devoured.

How It Works-Continued The ABC procedure is: Continuous Flexible Traceable Understandable Logical

How It Works-Continued ABC information may bring about exercises being: Favorably affected Changed Improved Eliminated

A Real World Example: Farrall Inc. Clarification Manufacturer of channel materials Annual offers of $500 million Decides to execute an ABC framework

Farrall, Inc.- Continued Findings of ABC examination Activities shifted with both unit generation volume and work orders (cluster creation). Low volume custom items were costing the organization.

Farrall, Inc.- Continued Conclusion Top clients were giving a colossal share of the benefits. Low volume clients were expanding item costs.

Exercise ABC Cost Pools Production ($50,000) Inspection ($25,000) Warehousing ($30,000) Purchasing ($95,000) Receiving ($40,000) Order Entry ($40,000)

Exercise-Continued Match the cost with the proper ABC cost driver.

Exercise-Continued Calculate Cost Rates What territories ought to administration concentrate on?

Summary Focusing on the ABC technique: Considers all expenses. Doles out expenses to particular items or clients. Recognizes "business-supporting and low-esteemed" exercises.

Summary-Continued Activity-based costing furnishes administration with a substitute method for survey costs inside an association.

Readings List Cokins, G. (2002). "Action Based Costing: Optional or Required?" Transactions of AACE International . Colson, R. also, J. Lere. (Walk 2002). "Offering Activity-Based Costing." CPA Journal . Vol. 72, Issue 3. Cortese-Danile, T. furthermore, C. Latshaw. (Winter 2002). "Movement Based Costing: Usage and Pitfalls." Review of Business . Vol. 23, Issue 1. Ittner, C., Lanen, W., & D. Larcker. (June 2002). "The Association Between Activity-Based Costing and Manufacturing Performance." Journal of Accounting Research . Vol. 40, Issue 3.

Readings List-Continued Naidoo, S. (May 2002). "Voyage of Discovery." Financial Management . Peckenpaugh, J. (April 2002). "Instructing the ABC's." Government Executive . Vol. 34, Issue 4. Taylor, J. (May/June 2002). "Movement Based Costing." AFP Exchange . Vol. 22, Issue 3.