Maliyet Muhasebesi Activity-Based © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Chapter 4 Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Explain undercosting and overcosting of products Undercosting and Overcosting© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Undercosting and Overcosting Product undercosting : ? A product consumes a relatively high level ? of resources but is reported to have a relatively low total cost. Product overcosting: ? A product consumes a relatively low level of ? resources but is reported to have a relatively high total cost. Undercosting and Overcosting© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Irene, Roberta, and Nancy meet ? occasionally for lunch. Each one orders separate items. ? Irene’s order amounts to $14 ? Roberta consumed 30 Nancy’s order is 16 Total $60 Undercosting and Overcosting© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Assuming they divide the bill equally, ? what is the average cost per lunch? $60 ÷ 3 = $20 ? Irene and Nancy are overcosted. ? Roberta is undercosted. ? Undercosting and Overcosting© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin One of the most difficult tasks in computing accurate unit costs lies in determining the proper amount of overhead cost to assign to each job. A s s i g n i n g o v e r h e a d i s d i f f i c u l t . I agree! Activity-Based Costing (ABC)© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin L e v e l o f C o m p l e x i t y Overhead Allocation Plantwide Overhead Rate Departmental Overhead Rates Activity-Based Costing Activity-Based Costing (ABC)© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin In the ABC method, we recognize that many activities within a department drive overhead costs. A B C A C B Activity-Based Costing (ABC)© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Identify activity cost pools and assign indirect costs to those pools. Central idea . . . Products require activities. ? Activities consume resources. ? Activity-Based Costing (ABC) A B C A C B© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin INDIRECT COST POOL COST ALLOCATION BASE DIRECT COST ? ? ? Manufacturing Overhead Direct Labor Hours Direct Materials ? COST OBJECT: COMPONENTS Indirect Costs Direct Costs Direct Manufacturing Labor Simple Costing System© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin INDIRECT COST POOL COST ALLOCATION BASE DIRECT COST ? ? ? Purchasing Orders Direct Materials ? COST OBJECT: COMPONENTS Indirect Costs Direct Costs Direct Manufacturing Labor Scrap rework Orders Testing Tests Machine related Hours ABC System© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin More detailed measures of costs. ? Better understanding of activities. ? More accurate product costs for . . . ? Pricing decisions. ? Product elimination decisions. ? Managing activities that cause costs. ? Benefits should always be compared to ? costs of implementation. The Benefits of ABC© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Most cost drivers are related to either volume or complexity of production. Examples: machine time, machine setups, purchase ? orders, production orders. Three factors are considered in choosing a cost driver: Causal relationship. ? Benefits received. ? Reasonableness. ? Identifying Cost Drivers © The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Overhead Actual Rate Activity × Rate = Estimated overhead costs in activity cost pool Estimated number of activity units Identify activities that consume resources. ? Assign costs to a cost pool for each activity. ? Identify cost drivers associated with each ? activity. Compute overhead rate for each cost pool: ? Assign costs to products: ? Activity-Based Costing Procedures© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Learning Objective LO7 To demonstrate how activity bases are used to assign activity cost pools to units produced.© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Pear Company manufactures a product in regular and deluxe models. Overhead is assigned on the basis of direct labor hours. Budgeted overhead for the current year is $2,000,000. Other information: Deluxe Regular Model Model Direct Material 150 $ 112 $ Direct Labor Cost 16 8 Direct Labor Time 1.6 hours 0.8 hours Expected Volume (units) 5,000 40,000 First, determine the unit cost of each model using traditional costing methods. Traditional Costing vs. ABC Example© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Direct Labor Hours Deluxe Model 5,000 units @ 1.6 hours 8,000 Regular Model 40,000 units @ 0.8 hours 32,000 Total Direct Labor Hours (DLH) 40,000 Overhead Estimated overhead costs Rate Estimated activity = Overhead $2,000,000 Rate 40,000 DLH = = $50 per DLH Traditional Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Deluxe Regular Model Model Direct Material 150 $ 112 $ Direct Labor 16 8 Manufacturing Overhead $50 per hour × 1.6 hours 80 $50 per hour × 0.8 hours 40 Total Unit Cost 246 $ 160 $ ABC will have different overhead per unit. Traditional Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Pear Company plans to adopt activity-based costing . Using the following activity center data, determine the unit cost of the two products using activity-based costing. O v e r h e a d A c t i v i t y C o s t C o s t f o r U n i t s o f A c t i v i t y C o s t P o o l D r i v e r A c t i v i t y D e l u x e R e g u l a r P u r c h a s i n g O r d e r s 8 4 , 0 0 0 $ 4 0 0 8 0 0 S c r a p R e w o r k O r d e r s 2 1 6 , 0 0 0 3 0 0 6 0 0 T e s t i n g T e s t s 4 5 0 , 0 0 0 4 , 0 0 0 1 1 , 0 0 0 M a c h i n e R e l a t e d H o u r s 1 , 2 5 0 , 0 0 0 2 0 , 0 0 0 3 0 , 0 0 0 T o t a l O v e r h e a d 2 , 0 0 0 , 0 0 0 $ Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Activity-Based Costing O v e r h e a d U n i t s A c t i v i t y C o s t C o s t f o r o f C o s t P o o l D r i v e r A c t i v i t y A c t i v i t y R a t e P u r c h a s i n g O r d e r s 8 4 , 0 0 0 $ 1 , 2 0 0 S c r a p R e w o r k O r d e r s 2 1 6 , 0 0 0 9 0 0 T e s t i n g T e s t s 4 5 0 , 0 0 0 1 5 , 0 0 0 M a c h i n e R e l a t e d H o u r s 1 , 2 5 0 , 0 0 0 5 0 , 0 0 0 T o t a l O v e r h e a d 2 , 0 0 0 , 0 0 0 $ 400 deluxe + 800 regular = 1,200 total© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin O v e r h e a d U n i t s A c t i v i t y C o s t C o s t f o r o f C o s t P o o l D r i v e r A c t i v i t y A c t i v i t y R a t e P u r c h a s i n g O r d e r s 8 4 , 0 0 0 $ 1 , 2 0 0 $ 7 0 p e r o r d e r S c r a p R e w o r k O r d e r s 2 1 6 , 0 0 0 9 0 0 $ 2 4 0 p e r o r d e r T e s t i n g T e s t s 4 5 0 , 0 0 0 1 5 , 0 0 0 $ 3 0 p e r t e s t M a c h i n e R e l a t e d H o u r s 1 , 2 5 0 , 0 0 0 5 0 , 0 0 0 $ 2 5 p e r h o u r T o t a l O v e r h e a d 2 , 0 0 0 , 0 0 0 $ R a t e = O v e r h e a d C o s t f o r A c t i v i t y ÷ U n i t s o f A c t i v i t y Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin D e l u x e M o d e l R e g u l a r M o d e l A c t u a l C o s t A c t u a l C o s t A c t i v i t y U n i t s o f A l l o c a t e d U n i t s o f A l l o c a t e d C o s t P o o l R a t e A c t i v i t y t o P r o d u c t A c t i v i t y t o P r o d u c t P u r c h a s i n g $ 7 0 / o r d e r 4 0 0 ? 8 0 0 ? S c r a p R e w o r k $ 2 4 0 / o r d e r 3 0 0 ? 6 0 0 ? T e s t i n g $ 3 0 / t e s t 4 , 0 0 0 ? 1 1 , 0 0 0 ? M a c h i n e R e l a t e d $ 2 5 / h o u r 2 0 , 0 0 0 ? 3 0 , 0 0 0 ? T o t a l O v e r h e a d ? ? Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin D e l u x e M o d e l R e g u l a r M o d e l A c t u a l C o s t A c t u a l C o s t A c t i v i t y U n i t s o f A l l o c a t e d U n i t s o f A l l o c a t e d C o s t P o o l R a t e A c t i v i t y t o P r o d u c t A c t i v i t y t o P r o d u c t P u r c h a s i n g $ 7 0 / o r d e r 4 0 0 2 8 , 0 0 0 $ 8 0 0 5 6 , 0 0 0 $ S c r a p R e w o r k $ 2 4 0 / o r d e r 3 0 0 ? 6 0 0 ? T e s t i n g $ 3 0 / t e s t 4 , 0 0 0 ? 1 1 , 0 0 0 ? M a c h i n e R e l a t e d $ 2 5 / h o u r 2 0 , 0 0 0 ? 3 0 , 0 0 0 ? T o t a l O v e r h e a d ? ? C o s t A l l o c a t e d t o P r o d u c t = A c t u a l U n i t s o f A c t i v i t y × R a t e Let’s complete the table. Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin D e l u x e M o d e l R e g u l a r M o d e l A c t u a l C o s t A c t u a l C o s t A c t i v i t y U n i t s o f A l l o c a t e d U n i t s o f A l l o c a t e d C o s t P o o l R a t e A c t i v i t y t o P r o d u c t A c t i v i t y t o P r o d u c t P u r c h a s i n g $ 7 0 / o r d e r 4 0 0 2 8 , 0 0 0 $ 8 0 0 5 6 , 0 0 0 $ S c r a p R e w o r k $ 2 4 0 / o r d e r 3 0 0 7 2 , 0 0 0 6 0 0 1 4 4 , 0 0 0 T e s t i n g $ 3 0 / t e s t 4 , 0 0 0 1 2 0 , 0 0 0 1 1 , 0 0 0 3 3 0 , 0 0 0 M a c h i n e R e l a t e d $ 2 5 / h o u r 2 0 , 0 0 0 5 0 0 , 0 0 0 3 0 , 0 0 0 7 5 0 , 0 0 0 T o t a l O v e r h e a d 7 2 0 , 0 0 0 $ 1 , 2 8 0 , 0 0 0 $ C o s t A l l o c a t e d t o P r o d u c t = A c t u a l U n i t s o f A c t i v i t y × R a t e Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin D e l u x e M o d e l R e g u l a r M o d e l A c t u a l C o s t A c t u a l C o s t A c t i v i t y U n i t s o f A l l o c a t e d U n i t s o f A l l o c a t e d C o s t P o o l R a t e A c t i v i t y t o P r o d u c t A c t i v i t y t o P r o d u c t P u r c h a s i n g $ 7 0 / o r d e r 4 0 0 2 8 , 0 0 0 $ 8 0 0 5 6 , 0 0 0 $ S c r a p R e w o r k $ 2 4 0 / o r d e r 3 0 0 7 2 , 0 0 0 6 0 0 1 4 4 , 0 0 0 T e s t i n g $ 3 0 / t e s t 4 , 0 0 0 1 2 0 , 0 0 0 1 1 , 0 0 0 3 3 0 , 0 0 0 M a c h i n e R e l a t e d $ 2 5 / h o u r 2 0 , 0 0 0 5 0 0 , 0 0 0 3 0 , 0 0 0 7 5 0 , 0 0 0 T o t a l O v e r h e a d 7 2 0 , 0 0 0 $ 1 , 2 8 0 , 0 0 0 $ C o s t A l l o c a t e d t o P r o d u c t = A c t u a l U n i t s o f A c t i v i t y × R a t e Total overhead = $720,000 + $1,280,000 = $2,000,000 Recall that $2,000,000 was the original amount of overhead assigned to the products using traditional overhead costing. Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin O v e r h e a d C o s t s A s s i g n e d t o P r o d u c t s : D e l u x e M o d e l $ 7 2 0 , 0 0 0 ÷ 5 , 0 0 0 u n i t s = $ 1 4 4 p e r u n i t R e g u l a r M o d e l $ 1 , 2 8 0 , 0 0 0 ÷ 4 0 , 0 0 0 u n i t s = $ 3 2 p e r u n i t D e l u x e R e g u l a r M o d e l M o d e l D i r e c t M a t e r i a l s 1 5 0 $ 1 1 2 $ D i r e c t L a b o r 1 6 8 M a n u f a c t u r i n g O v e r h e a d 1 4 4 3 2 T o t a l U n i t C o s t 3 1 0 $ 1 5 2 $ O v e r h e a d C o s t s A s s i g n e d t o P r o d u c t s : D e l u x e M o d e l $ 7 2 0 , 0 0 0 ÷ 5 , 0 0 0 u n i t s = $ 1 4 4 p e r u n i t R e g u l a r M o d e l $ 1 , 2 8 0 , 0 0 0 ÷ 4 0 , 0 0 0 u n i t s = $ 3 2 p e r u n i t D e l u x e R e g u l a r M o d e l M o d e l D i r e c t M a t e r i a l s 1 5 0 $ 1 1 2 $ D i r e c t L a b o r 1 6 8 M a n u f a c t u r i n g O v e r h e a d 1 4 4 3 2 T o t a l U n i t C o s t 3 1 0 $ 1 5 2 $ Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin This result is not uncommon when activity-based costing is used. Many companies have found that low-volume, specialized products have greater overhead costs than previously realized. Traditional Costing ABC Deluxe Regular Deluxe Regular Model Model Model Model Direct materials 150 $ 112 $ 150 $ 112 $ Direct labor 16 8 16 8 Overhead 80 40 144 32 Total cost 246 $ 160 $ 310 $ 152 $ Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin INDIRECT COST POOL COST ALLOCATION BASE DIRECT COST ? ? ? Manufacturing Overhead Direct Labor Hours Direct Materials ? COST OBJECT: COMPONENTS Indirect Costs Direct Costs Direct Manufacturing Labor Simple Costing System© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin INDIRECT COST POOL COST ALLOCATION BASE DIRECT COST ? ? ? Purchasing Orders Direct Materials ? COST OBJECT: COMPONENTS Indirect Costs Direct Costs Direct Manufacturing Labor Scrap rework Orders Testing Tests Machine related Hours ABC System© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Cost Cost Driver Materials purchasing Number of purchase orders Materials handling Number of materials requisitions Personnel processing Number of employees hired or laid off Equipment depreciation Number of products produced or hours of use Quality inspection Number of units inspected Indirect labor for Number of setups required equipment setups Engineering costs for Number of modifications product modifications Costs and Cost Drivers in Activity-Based Costing© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin End of Chapter 17