week 3 slides

ACCTG221ActivityBasedCostingChapter:51PresentedbyDrDavoodAskaranyOutline:•IdentifyinglearningObjectives•ShorthistoryofABC•PresentingtheresultsoflatestresearchonadoptionofABC•ExplainingABCsystemanditscosthierarchiesandcomparingitwithtraditionalsystemsinawaythatitcanbeunderstandbystudentswithlimitedaccountingbackground(e.g.acc101,102,wehaveextraweeklyquizzesonMALforenhancingyourknowledgeandtheycouldhelpyouwithyourfinalmarks)•PresentingexamplesofusefulnessofABCinbusiness•Emphasizingfurthereducationalresource(e.g.MAL)forthistopicLearningObjectives•Understandingthefundamentalsofactivity-basedcosting(ABC)•Understandingvalue-addedversusnon-value-addedactivities•Understandingwhycostdriversaredesignatedinactivity-basedcosting•Learninghowcostsarecomputedusingactivity-basedcosting•UnderstandingthedifferencesbetweenABCandtraditionalcostingsystems•Learningwhenitisappropriatetouseactivity-basedcosting•LearningaboutTime-drivenABCActivityBasedCosting(ABC)•ABCisacostingsystemthatfirstidentifiesactivitiesinanorganizationandthenassignsthecostofeachactivitiestoproductsandservicesbasedonactualconsumption.•TheconceptofABCwasdevelopedinthemanufacturingsectoroftheUnitedStatesduringthe1970sand1980s.•RobinCooperandRobertS.KaplanpublishedsomearticlesaboutABCinHarvardBusinessReviewbeginningin1980swhichattractedgreatattentionsintheliterature.•TheydescribedABCasanapproachtosolvetheproblemsoftraditionalcostmanagementsystems.•Oneoftheproblemswithtraditionalcostingsystemsissuggestedtobetheirlackofaccuracy(inallocatingcoststocostobjects)whichcouldleadtowrongdecisionmaking.4ABC•Productorservice?Usedforbothproductsandservices.5Activity-BasedCosting(ABC)•Amethodofattributingcoststoproductsbasedon:CostsActivitiesProductsassigningcostsofresourcestoactivitiesassigningcostsofactivitiestoproductsTraditionalcostingSystems•Amethodofattributingcoststoproductsbasedon:CostsDepartmentsProductsassigningcostsofresourcestodepartmentsassigningcostsofdepartmentstoproductsTraditionalcostingsystemsVSABCTraditionalcostingsystemsareusuallyVolumeBased:(Allocatecoststoindividualproductsonunitlevelbasise.g.directlabourhours,unitsproducedetc.ABCMethod:–Classifycostsintoacosthierarchy.•Unitlevel:Allocateonvolumebasis(iesameasVolumeBased).•Batchlevel:Allocateaccordingtobatchactivity(newallocationmethod).•Productlevel:Allocatetoproductsresponsibleforthesecostsonavolumebasis(newallocationmethod).•Facilitylevel:Allocateonvolumebasis(iesameasVolumeBased).8ABC’saim•AimofABCistoclassifyandallocateoverheadsinasuchawaythatbetterreflectstheconsumptionofmanufacturing/serviceresources.9Traditionalsystemswereappropriatewhen:1.Directcostswerethedominantcosts(lowoverheadcosts).2.Informationcostswerehigh(e.g.becauseoflackofcomputerizedprograms,itwasverycostlytoprovidedetailedandaccurateinformationforcosts).3.Therewasalackofintenseglobalcompetition(e.g.notverysensitivetocheckifyoucanreducetheprice).4.Alimitedrangeofproductswasproduced(e.g.noneedforaccurateseparatecostsfordifferentproducts).However,theadoptionofABCsystemsrequiressubstantialresources.ThebenefitsofincreasedaccuracymustoutweightheseadditionalcostsTheemergenceofABCsystems10AsummaryofthediffusionofABCduringthepasttwoDecades:Adoptedfrom:Askarany,D.&Yazdifar,H.(2012).‘AnInvestigationintotheMixedReportedAdoptionRatesforABC:EvidencefromAustralia,NewZealandandtheUK‘,InternationalJournalofProductionEconomics,Volume135,Issue1,Pages430-43911Author,DateAdoptioncountry(DruryandTayles,2000)4%UK(Cobbetal.,1993)6%UK(InnesandMitchell,1991,1995)6%UK(WarwickandReeve,1997)10%Australia(Nicholls,1992)10%UK(Cinquinietal.,1999)10%Italy(ArmitageandNicholson,1993)11%US(Chenetal.,2001)11%HongKong(Sartoriusetal.,2007)11.60%SouthAfrica(Clarkeetal.,1999)11.80%Ireland(Chongruksut,2002)11.90%ThailandAsummaryofthediffusionofABCduringthepasttwodecades12Author,DateAdoptioncountry(Booth and Giacobbe, 1997)12%Australia(Corrigan, 1996)12%Australia(Groot, 1999)12%Netherlands(Nguyen and Brooks, 1997)12.50%Australia(Clarke and Mia, 1995)13%Australia(Armitage and Nicholson, 1993)14%Canada(Al‐Omiri and Drury, 2007)15%UK(Askarany and Yazdifar, 2009)15.20%UK(Cotton et al., 2003)17.50%UK(Innes et al., 2000)17.50%UK(Groot, 1999)17.70%USAsummaryofthediffusionofABCduringthepasttwodecades13Author,DateAdoptioncountry(APQC/CAM, 1995)18%US(Askarany and Smith, 2004)19%Australia(Kip and Augustin, 2007)19%Germany(Hosseini et al., 1997)20%Canada(Joshi, 2001)20%India(Cotton et al., 2003)20.30%NewZealand(Innes and Mitchell, 1995)21%UK(Kip and Augustin, 2007)21%US(Askarany and Yazdifar, 2009)22.50%NewZealand(Askarany and Yazdifar, 2009)23.40%Australia(Pavlatos and Paggios, 2009)23.50%GreekAsummaryofthediffusionofABCduringthepasttwodecades14Author,DateAdoptioncountry(Ittneret al., 2002)26%US(Fawzi, 2008)26.30%Ireland(Pierce and Brown, 2004)27.90%Ireland(Askaranyet al., 2007)28%Australia(Hosseiniet al., 1997)28%US(Maelahand Ibrahim, 2007)36%Malaysia(Björnenak, 1997)40%Norway(Cohen et al., 2005)40.90%Greek(Gosselin, 1997)47.8%Canada(Yakhou and Dorweiler, 1995)48%UK(Duffy and McC