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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.

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managerial accounting an introduction to concepts methods and uses

Managerial Accounting: An Introduction To Concepts, Methods, And Uses

Chapter 3

Activity-Based Management

Maher, Stickney and Weil

learning objectives slide 1 of 2
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
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
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
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
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
cost rates per cost driver unit
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

Cost Hierarchies
resources used vs resources supplied
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
slide19
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