two problems in costing
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ise304.01-132-lec23-ch09-abc.pdf
Activity-Based Costing (ABC)
Lecture 23
Chapter 9
Overview:
1. Explain how a two stage product costing system works.
2. Compare and contrast plantwide and department allocation methods.
3. Explain how activity-based costing and a two-stage product system are related.
4. Compute product costs using activity-based costing.
5. Compare activity-based product costing to traditional department product costing methods.
6. Demonstrate the flow of costs through accounts using activity- based costing.
7. Apply activity-based costing to marketing and administrative services.
Direct Materials Costs (T Accounts)
Assembly WIP J40X
Material Inventory
Assembly WIP J25P
1,500,000
DM1,500,000
2,400,000
DM2,400,000
ABC cost flow for the Assembly Department
BB >1,500,000
Direct Labor Costs (T Accounts)
Wages Payable
750,000
600,000
Assembly WIP J25P
Assembly WIP J40X
DM1,500,000
DM2,400,000
DL 750,000
DL 600,000
Overhead Costs (T Accounts)
Handling Material
Setting up Machines
Assembly WIP J25P
Assembly WIP J40X
DM1,500,000
DM2,400,000
DL 750,000
DL 600,000
Assembling
180,000
36,000
24,000
900,000
360,000
120,000
Overhead Accounts
OH 180,000
OH 900,000
36,000
360,000
24,000
120,000
Overhead Costs (T Accounts)
Handling Material
Setting up Machines
Assembly WIP J25P
Assembly WIP J40X
DM1,500,000
DM2,400,000
DL 750,000
DL 600,000
Assembling
180,000
36,000
24,000
900,000
360,000
120,000
1,080,000
396,000
144,000
Overhead Accounts
OH 180,000
OH 900,000
36,000
360,000
24,000OH 240,000
120,000OH1,380,000
Transfer from Assembly to Packaging (T Accounts)
Assembly WIP J25P
Assembly WIP J40X
DM1,500,000
DM2,400,000
DL 750,000
DL 600,000
OH 240,000
OH1,380,000
Packaging WIP J25P
Packaging WIP J40X
2,490,000
4,380,000
2,490,000
4,380,000
Transfer from Assembly to Packaging (T Accounts)
Packaging WIP J25P
Packaging WIP J40X
2,490,000
4,380,000
990,000
360,000
Direct Labor
Wages Payable
750,000
600,000
990,000
360,000
Transfer from Assembly to Packaging (T Accounts)
Packaging WIP J25P
Packaging WIP J40X
2,490,000
4,380,000
990,000
360,000
Overhead-Packaging
Inspection & Packing
Shipping
132,000
300,000
264,000
114,000
OH 114,000 264,000
OH 300,000 132,000
Transfer from Assembly to Packaging (T Accounts)
Packaging WIP J25P
Packaging WIP J40X
2,490,000
4,380,000
990,000
360,000
Overhead-Packaging
Inspection & Packing
Shipping
132,000
300,000
264,000
114,000
396,000
414,000
OH 114,000 264,000
OH 300,000 132,000432,000
378,000
ABC in Administration
1. Identify the activities that consume resources.
2. Identify the cost driver associated with each activity.
3. Compute a cost rate per cost driver for each unit or transaction.
4. Allocate costs to the marketing or administration activity by
multiplying the cost driver rate by the volume of cost driver units
consumed by that activity.
The same four-step process
Chapter 9
Activity-Based Costing (ABC) Practice Problems
14
Practice Problem 1: Plantwide vs. Department Allocation
15
Practice Problem 1: Plantwide vs. Department Allocation
16
Practice Problem 1: Plantwide vs. Department Allocation
Plantwide
Department
17
Practice Problem 2: ABC vs. Traditional Costing
Practice Problem 2: ABC vs. Traditional Costing
19
Practice Problem 3: ABC in Service Organization
= 3.1/hr
20
Practice Problem 3: ABC in Service Organization
21
Practice Problem 4: ABC: Costs Flow Through T-Accounts
22
Practice Problem 4: ABC: Costs Flow Through T-Accounts
Practice Problem 5: ABC vs. Traditional Costing
a
26
Practice Problem 5: ABC vs. Traditional Costing
28
Practice Problem 5: ABC vs. Traditional Costing
