Lecture Managerial accounting - Chapter 7: Activity-based costing and activity-based management. After studying this chapter you will be able to understand: Activity-based costing, developing activity-based product costs, activity-based management. | CHAPTER © jsnyderdesign / iStockphoto 7 ACTIVITY-BASED COSTING & ACTIVITY-BASED MANAGEMENT WHAT’S UP WITH C&C SPORTS? Costs skyrocketed Variance analysis – 4th quarter Lining: $6,250 F price; $8,000 U quantity DL: $1,650 U rate; $14,400 U efficiency VOH: $26,195 U spending; $3,955 U efficiency Additional jackets appear to have added complexity to production processes Need to better understand product costs ACTIVITY-BASED COSTING Unit 7 1 . Unit Unit © Tomwang112 / iStockphoto TRADITIONAL COSTING AND PORS ACTIVITY-BASED COSTING CONCEPT WHAT’S THE COST DRIVER? Suppose one batch of jackets takes 15 hours and three batches of jerseys take 15 hours. Do both products consume the same amount of forklift resource? DLHS? batches moved? TYPES OF ACTIVITIES Unit-level Batch-level Product-level Customer-level Organization-level TYPES OF ACTIVITIES Unit-level Incurred by production or acquisition of a single unit of product or the delivery of a single unit of service Batch-level . | CHAPTER © jsnyderdesign / iStockphoto 7 ACTIVITY-BASED COSTING & ACTIVITY-BASED MANAGEMENT WHAT’S UP WITH C&C SPORTS? Costs skyrocketed Variance analysis – 4th quarter Lining: $6,250 F price; $8,000 U quantity DL: $1,650 U rate; $14,400 U efficiency VOH: $26,195 U spending; $3,955 U efficiency Additional jackets appear to have added complexity to production processes Need to better understand product costs ACTIVITY-BASED COSTING Unit 7 1 . Unit Unit © Tomwang112 / iStockphoto TRADITIONAL COSTING AND PORS ACTIVITY-BASED COSTING CONCEPT WHAT’S THE COST DRIVER? Suppose one batch of jackets takes 15 hours and three batches of jerseys take 15 hours. Do both products consume the same amount of forklift resource? DLHS? batches moved? TYPES OF ACTIVITIES Unit-level Batch-level Product-level Customer-level Organization-level TYPES OF ACTIVITIES Unit-level Incurred by production or acquisition of a single unit of product or the delivery of a single unit of service Batch-level Incurred when a group of similar things are made, handled or processed at the same time Product-level Incurred in support of different products or processes Customer-level Incurred to support and sustain a specific customer Organization-level Incurred to support and sustain a business unit UNIT LEVEL ACTIVITIES Volume or level of activity is proportional to the number of units produced Costs incurred to perform these activities can be allocated using traditional methods such as DLH or MH C&C – operating sewing machines BATCH-LEVEL ACTIVITIES Volume or level of activity is proportional to the number of batches produced Costs are incurred when a group of similar things are made or handled at the same time C&C – Moving batches of products; cutting fabric PRODUCT-LEVEL ACTIVITIES Activities that support the production and sale of individual products Related to all units and batches produced, regardless of volume C&C – creating patterns for new products CUSTOMER LEVEL-ACTIVITIES Activities .