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2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Introduction to Management
Accounting
Chapter 4
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Learning
Objective 1
AAcost
costmanagement
managementsystem
system(CMS)
(CMS)isis
aacollection
collectionof
oftools
toolsand
andtechniques
techniques
that
thatidentifies
identifieshow
howmanagements
managements
decisions
decisionsaffect
affectcosts.
costs.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Learning
Objective 2
Cost
accumulation:
Cost
assignment:
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Material costs
(metals)
Cost assignment
to cost objects
Machining Department Finishing Department
1. Departments
Activity Activity
Activity Activity
Activity Activity
Activity Activity
2. Activities
Cabinets
3. Products
Cabinets
Desks
Tables
Desks
Tables
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Cost
A cost is a sacrifice or giving up of
resources for a particular purpose.
Costs are frequently measured by
the monetary units that must be
paid for goods and services.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Cost Object
A cost object (objective) is anything for which
A separate measurement of costs is desired.
Customers
Departments
Service
Processing orders
Product
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgs
Learning
Objective 3
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 4
Cost Allocation
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Cost Allocation
Cost allocations support a companys CMSthe system
providing cost measurements for strategic decision making,
operational control, and external reporting.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Cost Pool
A cost pool is a group of individual costs that a company
allocates to cost objects using a single cost-allocation base.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Cost Allocation
Direct costs are physically traced to a cost object.
Indirect costs are allocated using a cost-allocation base.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 5
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Product Costs
Product costs are costs identified with goods
produced or purchased for resale.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Period Costs
Period costs are deducted as expenses
during the current period without
going through an inventory stage.
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 6
Merchandising
Company (Retailer
or Wholesaler)
Product
Merchandi
se
(Inventoriab
Purchases
le)
Sales
Sales
Minus
Cost
Cost of
of
Expiratio
Merchandi
Merchandi
Goods
Goods Sold
Sold
n
se
se
(Expenses)
(Expenses)
Inventory
Inventory
Equals Gross
Margin Minus
Costs
Period
Costs
Selling
Selling Expenses
Expenses
and
and
Administrative
Administrative
Expenses
Expenses
Equals
Operating
Income
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Direct
Direct
Material
Material
Inventory
Inventory
Finished
Finished
Goods
Goods
Inventory
Inventory
Sales
Sales
Minus
Cost
Cost of
of
Expiratio
Goods
Work-inGoods Sold
Sold
Work-inn
(Expenses)
(Expenses)
Process
Process
Equals Gross
Inventory
Inventory
Margin Minus
Selling
Selling Expenses
Expenses
Period
and
and
Costs
Administrative
Administrative
Expenses
Expenses
Equals
Operating
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
Income 4 - 22
ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Retailer or Wholesaler
Cash
$ 4,000
Cash
$ 4,000
Receivables
25,000
Receivables
25,0
Subtotal
$29,000
Finished goods
32,000
Work in process 22,000
Direct material 23,000
Merchandise inventories
7
Total inventories
$77,000
Other current assets
Other current assets
1,000
Total current assets
$10
Total current assets
$107,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 7
All
AllUnallocated
Unallocated
Value
ValueChain
Chain
Costs
Costs
$100,000
$100,000
Cost Driver
[Direct Labor
Hours]
Direct
Direct
Materials
Materials
For
ForPen
Pen
Casings
Casings
$22,500
$22,500
Direct
Direct
Direct
Direct Materials
MaterialsFor
For
Labor
Cell
Labor
Cell
For
Phone
ForPen
Pen
Phone
Casings
Casings
Casings
Casings
$135,000
$12,000
$135,000$12,000
Sales
Sales $360,000
$360,000
Sales
Sales $80,000
$80,000
Direct
Direct
Labor
LaborFor
For
Cell
CellPhone
Phone
Casings
Casings
$15,000
$15,000
Unallocated
Unallocated $00,000
$00,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Cell Phone
Casings
Sales
$440,000 $360,000 $80,000
Direct materials
34,500
22,500
12,000
Direct labor
150,000
135,000
15,000
Indirect manufacturing 220,000
198,000
22,000
Gross profit
$ 35,500 $ 4,500 $31,000
Corporate expenses
100,000
Operating loss
($ 64,500)
Gross profit margin
8.07%
1.25%
38.
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
ABC System
Plant
Plantand
and
Machinery
Machinery
$180,000
$180,000
Engineers
Engineersand
and
CAD
Equipment
CAD Equipment
$40,000
$40,000
20%
75%
Processing
Activity
$135,000
+ 8,000
$143,000
Direct
Direct
Materials
Materials
For
ForPen
Pen
Casings
Casings
$22,500
$22,500
All
AllUnallocated
Unallocated
Value
ValueChain
ChainCosts
Costs
$100,000
$100,000
80%
25%
Production Support
Activity
$45,000
+32,000
$77,000
Cost Driver
Cost Driver
[Distinct Parts]
Direct
Direct
Direct
Materials
Direct
MaterialsFor
For
Labor
Cell
Labor
Cell
For
Pen
Phone
For Pen
Phone
Casings
Casings
Casings
Casings
$135,000
$12,000
$135,000 $12,000
Sales
Sales $360,000
$360,000
Sales
Sales $80,000
$80,000
Direct
Direct
Labor
LaborFor
For
Cell
Phone
Cell Phone
Casings
Casings
$15,000
$15,000
Unallocated
Unallocated $00,000
$00,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Internal Purposes
Cell
Pen
Reportin
Phone
g
Casing
Casin
s
gs
Sales
$440,000
$360,000
$80,000
Direct materials
34,500
22,500
12,
Direct labor
150,000
135,000
15,000
Processing activity
143,000
128,700
14,
14
Production support activity
77,000
15,400
Gross profit
$ 35,500
$ 58,400
($22,
Corporate expenses
100,000
Operating loss
($ 64,500)
Gross profit margin
8.07%
16.22%
External
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 8
Activity-Based Management
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Activity-Based Management
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Learning
Objective 9
Design of an Activity-Based
Cost Accounting System
Cost objectives
Key activities
Resources
Related cost drivers
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Design of an Activity-Based
Cost Accounting System
Key
Activity
Account billing
Bill verification
Account inquiry
Correspondence
Other activities
Cost
Driver
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Design of an Activity-Based
Cost Accounting System
Determine
Determine the
the relationships
relationships among
among
cost
cost objectives,activities,
objectives,activities, and
and resources.
resources.
Resource
Resource
Used
Usedto
to
Other
Other
Perform
PerformActivity
Activity
Activities
Activities Total
Total
Supervisor
Supervisor
Account
Account
Inquiry
Inquiry Correspondence
Correspondence
Activity
Activity
Activity
ActivityPerformed
Performed
Billing
Billing
Activity
Activity
40%
40%
Verification
Verification
All
All
Activity
Activity Activity
Activity
10%
10%
30%
30%
20%
20%
100%
100%
Account
inquiry
90
10
Account inquirylabor
labor
90
10
100%
100%
Billing
labor
30
70
Billing labor
30
70
100%
100%
Verification
labor
100
100%
Verification labor
100
100%
Paper
100
100%
Paper
100
100%
Computer
45
5
35
10
55
Computer
45
5
35
10
100%
100%
2005
Prentice
Hall
Business Publishing, Introduction
to Management Accounting 13/e, Horngren/Sundem/Stratton
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10
ce Hall Telecommunications
Business
Publishing,
Introduction to90
Management
Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Telecommunications
90
10
Design of an Activity-Based
Cost Accounting System
Units
Units
Activity
Cost
Residential
Activity
CostDriver
DriverUnits
Units
Residential
Commercial
Total
Commercial
Total
Account
20,000
Accountinquiry
inquiryInquiries
Inquiries
20,000
5,000
5,000 25,000
25,000
Correspondence
Correspondence
1,000
2,800
1,000
2,800
Letters
Letters
Bill
Billprinting
printing
160,000
160,000
Printed
Printedpages
pages
Verification
Accounts verified
1,800
1,800
120,000
120,000
40,000
40,000
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
20,000
Design of an Activity-Based
Cost Accounting System
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
Design of an Activity-Based
Cost Accounting System
Total traceable costs for the 5 activity
cost pools.
Activity Cost Pool
Design of an Activity-Based
Cost Accounting System
Activity-based cost per account for each customer class
Driver Costs
Total Number of
Traceable Costs
Driver Units Cost per
(from Exhibit 4-12) (From Exhibit 4-11)
Driver Unit
Activity (Driver Units)
(1) (2)
Account inquiry (inquiries)
Inquiries $13,314880
Correspondence (letters)
Letters
$11.555714
Account billing (printed pages)
0.957031
Bill verification (accounts verified)
Accounts verified
$ 3.421250
Other activities (printed pages)
Printed pages
$ 0.629513
(1)
153,125
(2)
$332,872
25,000
32,356
2,800
20,000
100,722
160,000
Driver Units
Account inquiry
Inquiries $ 66,574
Correspondence
$11.555714
1,800 Letters
20,800
1,000
2005
Prentice Hall11,556
Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
4 - 40
Letters
ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst
The End
End of Chapter 4
2005 Prentice Hall Business Publishing, Introduction to Management Accounting 13/e, Horngren/Sundem/Stratton
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ce Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgst