成本与管理会计亨格瑞第13版英文版CA05
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Increase in indirect costs. With modern technology, companies have experienced a decrease in direct costs with a resulting increase in indirect costs.
effective
base for each indirect-cost pool.
•Strategic decision
•Provide more data
•Price decision
•Multiple cost driver pools
•Market decision
Refining a Costing System
Competition in product markets. Markets have become more competitive, forcing managers to obtain more accurate cost information to help them make strategic decisions.
Increase in product diversity. The growing demand for customized products has led to product diversity with the result that products demand differing levels of resources.
There are a variety of methods to accomplish this goal.
Simple Methods Unrealistic
Complex Methods Realistic
Broad Averaging and Cross-subsidization
P110
to explain
Line managers do not believe the product costs reports
Some products that have reported high profit margins are not sold by competitors
LEARNING OBJECTIVE 2
Refining a Costing System,conts
Three guidelines are presented for refining a costing system.
1. Direct-cost tracing
classify as many of the total costs as
direct costs as is economically feasible.
2. Indirect-cost pools
expand the number of cost pools until
A refined cost system reduces the use of broad averages for assigning costs to resources. There are three principal reasons that have accelerated the demand for such refinements.P115
The undercosted product is left with too little cost, making it seem more profitable than it really is.
The Need for ABC
Direct labor is a small percentage
The result can be undercosting or overcosting of products.
Overcosting – a product consumes a low level of resources but is allocated high costs per unit (Emma’s dinner)
Advance in product and
Βιβλιοθήκη Baidu
•Differentiate from competitors
process technology increase indirect cost,
Guidelines for Refining a cost systems lower direct costs
成本与管理会计亨格瑞 第13版英文版CA05
2020年7月14日星期二
LEARNING OBJECTIVES
Explain how broad averaging undercosts and overcosts products or services
Present three guidelines for refining a costing system Distinguish between simple and activity-based costing systems Describe a four-part cost hierarchy Cost products or services using activity-based costing Explain how activity-based costing systems are used in activity-
Allocating overhead costs was simple: use broad averages to allocate costs uniformly regardless of how they are actually incurred
The use of broad averages in allocating indirect costs can have a number of adverse consequences.
costing systems
Structure of Lecture
➢Under- and over-costing – why it happens? ➢Activity Based Costing (ABC) ➢Indicators of need for ABC ➢ABC system ➢Difference between ABC and Traditional Product
Background
Easy to trace Direct materials and direct labor costs
Overhead cannot be traced easily and must be allocated with estimates.
Recall that Factory Overhead is applied to production in a rational and systematic manner, using some type of averaging.
The results of overcosting one product and undercosting another.
The overcosted product absorbs too much cost, making it seem less profitable than it really is.
based management Compare activity-based costing systems and department costing
systems Evaluate the costs and benefits of implementing activity-based
Undercosting – a product consumes a high level of resources but is allocated low costs per unit (James’s dinner)
Broad Averaging and Cross-subsidization,conts.
Advances in IT
each of these pools is homogeneous. Competition in markets
3. Cost-allocation basis
•Make trace more cost- identify the preferred cost-allocation
of total costs
Sales are increasing, but profits are declining.
Marketing does not use costs reports for
pricing decisions
Product-line profit margins are hard
Different products consume activities at different rates, traditional costing does not recognize these differences.
Peanut-butter costing uses broad averages to assign (or spread) costs uniformly to cost objects.
Present three guidelines for refining a costing system
Rationale for Refining Costing System
Increase in product diversity
Increase in Indirect Costs
•Customized products
Costs ➢Activity Based Management (ABM) ➢Value and non-value added costs
LEARNING OBJECTIVE 1
Explain how broad averaging undercosts and overcosts products or services
Refining a Costing System,conts
A refined cost system reduces the use of broad averages for assigning costs to resources. There are three principal reasons that have accelerated the demand for such refinements.
When a company has a situation in which undercosting or overcosting of products occurs, this is referred to as product-cost cross-subsidization. P110
Traditional product-costing methods use a single indirect cost rate to allocate costs to all products.
Broad Averaging and Cross-subsidization, conts.
entree dessert drinks
total
emma
11
0
4
15
james
20
8
14
42
jessica
15
4
8
27
matthew
14
4
6
24
total
60
16
32
108
average
15
4
8
27
Broad Averaging and Cross-subsidization,conts.
Historically, firms produced a limited variety of goods while their indirect costs were relatively small.
effective
base for each indirect-cost pool.
•Strategic decision
•Provide more data
•Price decision
•Multiple cost driver pools
•Market decision
Refining a Costing System
Competition in product markets. Markets have become more competitive, forcing managers to obtain more accurate cost information to help them make strategic decisions.
Increase in product diversity. The growing demand for customized products has led to product diversity with the result that products demand differing levels of resources.
There are a variety of methods to accomplish this goal.
Simple Methods Unrealistic
Complex Methods Realistic
Broad Averaging and Cross-subsidization
P110
to explain
Line managers do not believe the product costs reports
Some products that have reported high profit margins are not sold by competitors
LEARNING OBJECTIVE 2
Refining a Costing System,conts
Three guidelines are presented for refining a costing system.
1. Direct-cost tracing
classify as many of the total costs as
direct costs as is economically feasible.
2. Indirect-cost pools
expand the number of cost pools until
A refined cost system reduces the use of broad averages for assigning costs to resources. There are three principal reasons that have accelerated the demand for such refinements.P115
The undercosted product is left with too little cost, making it seem more profitable than it really is.
The Need for ABC
Direct labor is a small percentage
The result can be undercosting or overcosting of products.
Overcosting – a product consumes a low level of resources but is allocated high costs per unit (Emma’s dinner)
Advance in product and
Βιβλιοθήκη Baidu
•Differentiate from competitors
process technology increase indirect cost,
Guidelines for Refining a cost systems lower direct costs
成本与管理会计亨格瑞 第13版英文版CA05
2020年7月14日星期二
LEARNING OBJECTIVES
Explain how broad averaging undercosts and overcosts products or services
Present three guidelines for refining a costing system Distinguish between simple and activity-based costing systems Describe a four-part cost hierarchy Cost products or services using activity-based costing Explain how activity-based costing systems are used in activity-
Allocating overhead costs was simple: use broad averages to allocate costs uniformly regardless of how they are actually incurred
The use of broad averages in allocating indirect costs can have a number of adverse consequences.
costing systems
Structure of Lecture
➢Under- and over-costing – why it happens? ➢Activity Based Costing (ABC) ➢Indicators of need for ABC ➢ABC system ➢Difference between ABC and Traditional Product
Background
Easy to trace Direct materials and direct labor costs
Overhead cannot be traced easily and must be allocated with estimates.
Recall that Factory Overhead is applied to production in a rational and systematic manner, using some type of averaging.
The results of overcosting one product and undercosting another.
The overcosted product absorbs too much cost, making it seem less profitable than it really is.
based management Compare activity-based costing systems and department costing
systems Evaluate the costs and benefits of implementing activity-based
Undercosting – a product consumes a high level of resources but is allocated low costs per unit (James’s dinner)
Broad Averaging and Cross-subsidization,conts.
Advances in IT
each of these pools is homogeneous. Competition in markets
3. Cost-allocation basis
•Make trace more cost- identify the preferred cost-allocation
of total costs
Sales are increasing, but profits are declining.
Marketing does not use costs reports for
pricing decisions
Product-line profit margins are hard
Different products consume activities at different rates, traditional costing does not recognize these differences.
Peanut-butter costing uses broad averages to assign (or spread) costs uniformly to cost objects.
Present three guidelines for refining a costing system
Rationale for Refining Costing System
Increase in product diversity
Increase in Indirect Costs
•Customized products
Costs ➢Activity Based Management (ABM) ➢Value and non-value added costs
LEARNING OBJECTIVE 1
Explain how broad averaging undercosts and overcosts products or services
Refining a Costing System,conts
A refined cost system reduces the use of broad averages for assigning costs to resources. There are three principal reasons that have accelerated the demand for such refinements.
When a company has a situation in which undercosting or overcosting of products occurs, this is referred to as product-cost cross-subsidization. P110
Traditional product-costing methods use a single indirect cost rate to allocate costs to all products.
Broad Averaging and Cross-subsidization, conts.
entree dessert drinks
total
emma
11
0
4
15
james
20
8
14
42
jessica
15
4
8
27
matthew
14
4
6
24
total
60
16
32
108
average
15
4
8
27
Broad Averaging and Cross-subsidization,conts.
Historically, firms produced a limited variety of goods while their indirect costs were relatively small.