Chapter5Costingandcostmanagement
inacompetitiveenvironmentManagementAccountingforDecisionMakersTenthEdition
LEARNINGOUTCOMESYoushouldbeableto:Discusstheprinciplesandpracticalaspectsofactivity-basedcostingExplaintheroleofvaluechainanalysisandbenchmarkinginmanagingcostsDescribethemethodsthatmaybeusedtomanagecostsoverthelifecycleofaproductDescribethenatureofthemodernproductcostingandpricingenvironmentExplaintheimportanceoftotalqualitymanagementinthemodernenvironmentandidentifythemaintypesofqualitycoststhatmaybeincurred
CostingandpricingproductsinthetraditionalwayArelativelyuncompetitivemarketAlowlevelofindirectcostrelativetodirectcostDirectlabour-intensiveanddirectlabour-pacedproduction
CostingandpricingproductsinthemodernenvironmentAhighlycompetitiveinternationalmarketAhighlevelofoverheadsrelativetodirectcostCapital-intensiveandmachine-pacedproductionShortproductionlifecycles
Identifysupportactivitiesfortheproduct/
serviceIdentifycosttobeattributedtoeach
supportactivityIdentifycostdriverforeachsupportactivityEstablishcostpoolforeachsupportactivityAllocatetotalcoststorelevantcostpoolsChargetheproduct/
servicewiththecostineachpoolusingcostdriverFigure5.1KeystepsintheABCprocess
BenefitsofABCProvidesmanagerswithabetterunderstandingofthebusinessProvidesmoreaccuratecostforeachunitofproductorservice
Source:AdaptedfromInnes,J.andMitchell,F.(1990)ActivityBasedCosting:AReviewwithCaseStudies,CIMAPublishing.WithkindpermissionofElsevier.Figure5.2Traditionalversusactivity-basedcosting
Source:AdaptedfromInnes,J.andMitchell,F.(1990)ActivityBasedCosting:AReviewwithCaseStudies,CIMAPublishing.WithkindpermissionofElsevier.Figure5.2
Traditionalversusactivity-basedcosting(Continued)
CriticismsofABCTime-consumingandcostlyABCrepor