管理会计英语4.ppt
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1、Activity-Based Cost SystemsChapter 4Simple Cost Accounting Systems:Ericson Ice Cream Company ExampleEricson had been the low-cost producer of chocolate and vanilla ice cream,with profit margins exceeding 20%of salesSeveral years ago Ericson expanded their business by extending their product line int
2、o products with premium selling pricesEricson Ice Cream Company ExampleFive years ago strawberry ice cream was introducedThe same basic production technologyCould be sold at a price that was 3%higher than for blue and black pensLast year mocha-almond ice cream was addedCould be sold at a 10%price pr
3、emiumThe controller of Ericson was disappointed with the most recent quarters financial resultsTotal Profitability by Productvanilla chocolate strawberryMocha-almondTotalUnits50,00040,0009,0001,000100,000Price$4.50$4.50$4.65$4.95Sales$225,000$180,000$41,850$4,950$451,800Material75,00060,00014,0401,6
4、50150,690Labor30,00024,0005,40060060,000Overhead90,00072,00016,2001,800180,000Total Mfg.Expenses195,000156,00035,6404,050390,690Gross Margin$30,000$24,000$6,210$900$61,110G.M.%13.3%13.3%14.8%18.2%13.5%Managements ConcernThe controller wondered whether the company should continue to deemphasize the c
5、hocolate and vanilla products and keep introducing new specialty premium flavorsEricsons manufacturing manager commented on how the introduction of specialty flavors had changed the production environmentEricsons Indirect Cost AllocationBecause it was a small company and historically had produced on
6、ly a narrow range of products,Ericson used a simple costing systemAll the plants indirect expenses were aggregated at the plant level and allocated to products based on each products direct labor costCurrently the cost systems overhead burden rate was 300%of direct labor costBefore the new specialty
7、 products were introduced,the overhead rate was only 200%of direct labor costEricsons Cost SystemEricsons management accountants designed the system years ago when:Production operations were mostly manualTotal indirect costs were less than direct labor costsCoopers two products had similar productio
8、n volumes and batch sizesChanges in the Production EnvironmentDirect labor costs have decreased and indirect expenses have increased as a result of automationAs specialty low-volume products were added,Ericson needed:More schedulingMore setupsMore quality control personnelA computer to track orders
9、and product specificationsAn Outdated Cost SystemEricson operates with only a single cost centerEven if Ericson used multiple production and service department cost centers,it could still encounter severe distortions in its reported product costsReason for Cost Distortions schedule machine and produ
10、ction runsperform setupsinspect produced items after setupmove materialsship ordersexpedite ordersrework defective itemsdesign new productsimprove existing productsnegotiate with vendorsschedule materials receiptsorder,receive,and inspect incoming materials and partsupdate and maintain the much larg
11、er computer-based information systemA complex factory has a much larger production support staff because it requires more people to:Reason for Cost DistortionsBecause the factory has the same physical output,it has roughly the same cost of materialsThe companys factory has about the same property ta
12、xes,security costs,and heating bills as before,but it has much higher indirect and support costs because of its more varied product mix and complex production tasksReason for Cost DistortionsOn a per unit basis,high-volume standard flavors require about the same amount of direct labor costs(the allo
13、cation basis)as the low volume flavorsThe traditional costing system would report essentially identical product costs for all products,standard and specialty,irrespective of their relative production volumesClearly,however,considerably more indirect and support resources are required on a per-unit b
14、asis for the low-volume specialty products than for the high-volume,standard productsActivity-Based Cost SystemsActivity-based cost systems have been developed to eliminate this major source of cost distortionActivity-based cost(ABC)management systems use a simple two-stage approach similar to but m
15、ore general than traditional cost systemsTraditional v.ABC SystemTraditional:Uses actual departments or cost centers for accumulating and redistributing costsAsks how much of an allocation basis(usually based on volume)is used by the production departmentService department expenses are allocated to
16、a production department based on the ratio of the allocation basis used by the production departmentTraditional v.ABC SystemABC:Uses activities,for accumulating costs and redistributing costsAsks what activities are being performed by the resources of the service departmentResource expenses are assi
17、gned to activities based on how much of the resource is required or used to perform the activitiesTracing Costs to ActivitiesABC at Ericson:The controller started an analysis of indirect expenses,beginning with indirect laborThe controller interviewed department heads in charge of indirect labor and
18、 found that the people in these departments performed three main activitiesIndirect Labor Activities 50%of indirect labor was involved in what the controller called“handle production runs”40%of indirect labor actually performed the physical changeover from one flavor to another,an activity that she
19、labeled“perform setups”10%of the time was spent on activities the controller called“support products”First Steps in Design of An ABC System1)Develop the activity dictionary:the list of major activities performed by both the factorys human and physical resources2)Obtain sufficient information to assi
20、gn resource expenses to each activity in the activity dictionaryComputer System Expenses 20%of computer expenses should be assigned to“support products,”an activity already defined in her activity dictionary,because it was used to keep records on the four productsComputer System Expenses(2 of 2)80%o
21、f the computer resource was involved in the production run activity and seemed to relate well to the“handle production runs”activitiesOther Overhead ExpensesThere were three remaining categories of overhead expense:Machine depreciationMachine maintenanceEnergy to operate the machinesThese expenses w
22、ere incurred to supply machine capacity to produce the ice cream:The controller labeled this production activity“run machines”Identifying Cost HierarchiesThe four activities for Ericsons indirect costs represent the three different levels of the manufacturing cost hierarchy:PRODUCT SUSTAININGSUPPORT
23、 PRODUCTSBATCH LEVELSETUP MACHINESBATCH LEVELHANDLE PRODUCTION RUNSUNIT LEVELRUN MACHINESCOST HIERARCHYACTIVITYBenefits from first steps in an ABC SystemThe ABC model shifts the focus from what the money was being spent on(labor,equipment,supplies)to what the resources acquired by spending are actua
24、lly doingFrom ABC to ABMOperational activity-based management(ABM)-managers use information collected by the ABC system at the activity level to identify opportunities for reducing costs in indirect and support activitiesActivity Cost DriversActivity cost drivers represent the quantity of activities
25、 used to produce individual products:ACTIVITYACTIVITY COST DRIVERHANDLE PRODUCTION RUNS PRODUCTION RUNSSET UP MACHINESSETUP HOURSSUPPORT PRODUCTSNUMBER OF PRODUCTSRUN MACHINESMACHINE HOURSPROVIDE FRINGE BENEFITSLABOR DOLLARSCompleting the ABC Model Once the activity cost drivers had been determined,
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