Hansen AISE IM Ch04.ppt

LEARNING OBJECTIVES LEARNING OBJECTIVES Discuss the importance of unit costs. Describe functional-based costing approaches. Tell why functional-based costing approaches may produce distorted costs. LEARNING OBJECTIVES Explain how an activity-based costing system works for product costing. Explain how the number of activity rates can be reduced. QUESTIONS TO THINK ABOUT:SpringBanc QUESTIONS TO THINK ABOUT:SpringBanc QUESTIONS TO THINK ABOUT: SpringBanc QUESTIONS TO THINK ABOUT: SpringBanc UNIT COST: Definition UNIT COSTS Affect Bids submitted for special products Development, introduction of new products Decisions to Make or buy a product or service Accept or reject a special order Keep or drop a product or service UNIT COST INFORMATION May be produced by Actual direct materials, direct labor, overhead Normal costing Uses actual costs for direct materials direct labor but overhead is assigned at predetermined rates UNIT-LEVEL DRIVERS Used to assign manufacturing overhead by Units produced Direct labor hours Direct labor dollars Machine hours Direct material dollars CAPACITY LEVELS: Definition PLANTWIDE RATE: An Example PLANTWIDE RATE: 2 Products DEPARTMENTAL RATE MODEL DEPARTMENTAL RATE: 2 Products CREATING DISTORTIONS When a unit-level approach is used to assign non-unit-level costs (overhead), cost information can be distorted. NON-UNIT-LEVEL ACTIVITY DRIVER: Definition PRODUCT DIVERSITY: Definition COST DISTORTIONS:Plantwide Cost Assignment COMPARING UNIT COSTS KEY QUESTIONS How many employees are in your department? What do they do? Do customers outside your department use any equipment? What resources are used by each activity? What are the outputs of each activity? Who or what uses the activity output? How much time do workers spend on each activity? By equipment? RESOURCE DRIVER: Definition ASSIGNING COSTS TO ACTIVITIES: Step 1 ASSIGNING COSTS TO ACTIVITIES: Step 2 ASSIGNING COSTS TO PRODUCTS: Identify Costs ASSIGNING COSTS TO PRODUCTS: Assign Cost