The main contents of this chapter include all of the following: Problems with conventional product costing systems, activity-based costing, activity-based costing model, different forms of ABC activity-based versus conventional product costs when to use ABC impediments to using ABC other activity-based costing issues activity-based costing in service organisations. | Lecture 8:Activity Based Costing and Activity based Management (Continued) Managerial Accounting By Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso Managerial Accounting 12th edition by Garrison, Noreen, Brewer Activity-Based Costing Learning Objectives After studying this chapter, you should be able to: [1] Know how companies identify and use cost drivers in activity-based costing. [2] Understand the benefits and limitations of activity-based costing. [3] Differentiate between value-added and non–value added activities. [4] Understand the value of using activity levels in activity-based costing. [5] Apply activity-based costing to service industries. More accurate product costing through: Use of more cost pools to assign overhead costs. Enhanced control over overhead costs. Better management decisions. Benefits of ABC Can be expensive to use. Some arbitrary allocations continue. Limitations of ABC Activity-Based Costing: A Closer Look When to Use ABC Factors to consider: Product lines differ in volume and manufacturing complexity. Product lines are numerous and diverse. Overhead costs constitute a significant portion of total costs. The manufacturing process or the number of products has changed significantly. Production or marketing managers are ignoring data provided by the existing system. Activity-Based Costing: A Closer Look Value-Added Versus Non–Value-Added Activities Activity Based Management (ABM): An extension of ABC from a product costing system to a management function that focuses on reducing costs and improving processes and decision making. Value-added activities Non–value-added activities Activity-Based Costing: A Closer Look An activity that increases the perceived worth of a product or service such as: Value-Added Versus Non–Value-Added Activities Manufacturing Company Engineering design Machining services Assembly Painting Service Company Performing surgery Legal research Delivering packages Activity-Based Costing: A Closer Look An activity | Lecture 8:Activity Based Costing and Activity based Management (Continued) Managerial Accounting By Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso Managerial Accounting 12th edition by Garrison, Noreen, Brewer Activity-Based Costing Learning Objectives After studying this chapter, you should be able to: [1] Know how companies identify and use cost drivers in activity-based costing. [2] Understand the benefits and limitations of activity-based costing. [3] Differentiate between value-added and non–value added activities. [4] Understand the value of using activity levels in activity-based costing. [5] Apply activity-based costing to service industries. More accurate product costing through: Use of more cost pools to assign overhead costs. Enhanced control over overhead costs. Better management decisions. Benefits of ABC Can be expensive to use. Some arbitrary allocations continue. Limitations of ABC Activity-Based Costing: A Closer Look When to Use ABC Factors to consider: Product
