Professional Documents
Culture Documents
Chapter 5:
Cost Allocation and ActivityBased Costing
Slides Prepared by: Scott Peterson Northern State University
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
More
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Arbitrary Allocations
As might be expected, cost allocation fairness is the topic of heated management discussions. Unfortunately, allocations of costs are inherently arbitrary. It is impossible to determine the true or correct allocation. Related Learning Objectives:
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Activity-Based Costing
Activity-Based Costing (ABC) is a relatively recent development in management accounting. Related Learning Objectives:
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Major Activities
Following are examples of major activities under ABC: 1. Processing purchase orders. 2. Handling materials and parts. 3. Inspecting incoming material and parts. 4. Setting up equipment. 5. Producing goods using manufacturing equipment. 6. Supervising assembly workers. 7. Inspecting finished goods. 8. Packing customer orders.
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Associated Costs
Costs associated with the preceding major activities have to do with salaries and wages, depreciation on equipment and the like. Related Learning Objectives:
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Cost Drivers
Following are examples of cost drivers under ABC: 1. Number of purchase orders processed. 2. Number of material requisitions. 3. Number of receipts. 4. Number of setups. 5. Number of machine hours. 6. Number of assembly labor hours. 7. Number of inspections. 8. Number of boxes shipped.
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Activity-Based Management
Activity-Based Management (ABM) is a management tool with the goal of improving efficiency and effectiveness. It is similar to ABC, except that where ABC focuses on cost measurement, ABM focuses on the the activities themselves.
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
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Explain why indirect costs are allocated. Describe the cost allocation process. Discuss allocation of service department costs. Identify potential problems with cost allocation. Discuss activity-based costing (ABC) and cost drivers. Discuss activity-based management (ABM).
Copyright
2001 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein.