Managerial Accounting: An Introduction To Concepts, Methods, And Uses Chapter 3 Activity-Based Management Maher, Stickney and Weil

Learning Objectives (Slide 1 of 2)  Identify strategic and operational uses of activity-based management.  Differentiate between traditional cost allocation methods and activity-based costing.  Understand the concept of activity- based costing.  Identify the steps in activity-based costing.

Learning Objectives (Slide 2 of 2)  Apply activity-based management and costing to marketing.  Use the cost hierarchy to organize cost information for decision-making.  Distinguish between resources used and resources supplied, and measure unused resource capacity.  Explain the difficulties of implementing advanced cost-management systems.

Activity-based Costing & Management (ABCM) (Slide 1 of 4)  ABCM rests on this premise:  Products require activities  Activities consume resources  To understand a product’s costs, one must?  Identify activities required to make the product

Activity-based Costing & Management (ABCM) (Slide 2 of 4)  Identify resources used to provide for those activities  Figure the cost of those resources  To be competitive, managers must know both:  Activities involved in making the goods or providing the services, and  The cost of those activities

Activity-based Costing & Management (ABCM) (Slide 3 of 4)  ABCM has 2 parts: What are they?

Activity-based Costing & Management (ABCM)  ABC treats mostly indirect costs including:  Overhead costs related to the manufacture of a product or providing a service  Indirect costs of marketing a product  Indirect costs of managing a company

Discuss Strategic Uses of ABCM

What are the 4 steps of activity analysis?

Define Cost Pools

Review the Value Chain

Discuss the Analysis of Activities Cycle

Discuss Traditional Allocation Methods

Discuss Activity-Based Costing

What are the required steps of activity-based costing?

Cost Rates per Cost Driver Unit  Calculate predetermined cost rate for each cost driver as follows:

Cost Hierarchies Activity Category  Capacity  Customer  Product  Batch  Unit Examples  Plant Mgmt & Depr  Mkt Research  Product Specs & Testing  Machine Setups  Direct Materials

Resources Used Vs. Resources Supplied  ABC estimates cost of resources used by an activity as: Cost driver rate X cost driver volume  Cost of Resources supplied = amount spent on the activity  Difference between resources used and supplied is unused capacity

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