TrainingPresentationActivity-BasedCosting.pptVIP

Training 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-based costing focuses on work activities and facilitates decision-making processes by managers. ABC Defined-Continued Transition to ABC Cost Structure Product Diversity Brainstorming Develop a list of major costs that exist within your firm. Develop a list of activities that make up these costs. Brainstorming-Continued Discuss how managers maybe able to improve their decision-making abilities by viewing these major costs as activities. Nuts Bolts Goal: Use traditional costing information to “provide more focused data for improved decision support.” Costs must be assigned to the appropriate categories. Nuts Bolts-Continued Unit-Level Costs Examples: equipment depreciation, repairs, maintenance, and energy costs. Batch-Level Costs Examples: machine set-up costs, placing, orders, receiving materials, and paying suppliers. Nuts Bolts-Continued Product-Level Costs Examples: design costs, engineering costs. Facility-Level Costs Examples: president’s salary, building security. Nuts Bolts-Continued Cost Drivers-activities associated with incurred costs Cost Pools-combined costs affected by the same activities Cost Rates = total costs / # of activity units How It Works ABC requirements Clear Goals Management Support Committed Resources Priority Appropriate Training How It Works- Continued Process Group overhead costs into unit-, batch-, product-, and facility-level items. Identify cost drivers for each item. Items are placed into the appropriate cost pools. How It Works-Continued Process (continued) Within each cost pool, cost rates per activity are determined. Calculated cost rates are multiplied by the number of product or service units consumed. How It Works-Continued The ABC process is: Continuous Flexible