ch4 guidlines Flashcards
how do we develop an ABC system
- identify the activities and estimate the total MOH associated with each activity. These are known as the activity cost pools
- select a cost allocation base for each activity and estimate the total amount that will be used during the year
- calculate an activity cost allocation rate for each activity
- allocate some MOH from each activity to the individual jobs that use the activities
activity cost allocation rate
total estimated activity cost pool/ total estimated activity allocation base
allocate and activity’s cost to a job
activity cost allocation rate * actual amount of activity allocated base used by job
How to refine costing system support environmental sustainability
create a separate cost pools for env. related costs, management is better able to identify and appropriately assign costs to those activities and products driving the costs. Better transparency of information should lead to better decisions
decisions that benefit from ABC
pricing and product mix
cost cutting
routine planning and control
main benefits of ABC
more accurate product cost info
more detailed information on costs of activities and associated cost drivers help managers control costs and eliminate non-value-added activities
when is ABC likely to pass the cost-benifit test
The company is in a competitive environment and needs accurate product costs
The company makes diff. products that use diff. amounts of resources
The company has high indirect costs
The company produces high volumes of some products and lower volumes of others
The company has accounting and information technology expertise to implement the system
how to tell when a cost system needs to be refined
Managers lose bids they expect to win and win bids they expected to lose
Competitors earn profits despite pricing high-volume products below our costs
Employees do not believe cost numbers
The company has diversified the products in manufactures
The company has reengineered the production process but not the accounting system
operation features that help us become more lean
- just-in-time inventory
- value stream mapping
- production is self-contained work cells
- employee empowerment through broader roles and use of small teams
- 5S workplace organization
- point of use storage
- continuous flow pull system
- shorter manufacturing cycle time
- reduced setup time
- smaller batches
- emphasis on quality
- supply-chain management
4 quality costs
prevention
appraisal
internal failure
external failure
make trade-offs between the 4 types of quality costs
investment in prevention costs and appraisal cost reduce internal and external failure costs
