❖ Why?
1. Allocations are based on unit or volume related measures.
2. Different products consume different amounts of support activities.
Questionable profit margins
ABC成本分析法(英文)
Evolution of ABC
❖ Conventional costing systems use a twostage allocation process: 1. service department costs are allocated to production departments. 2. production department overhead costs are allocated to products using a volume-based predetermined overhead rate.
Cost Distortions caused by 2stage allocations
❖ There is a no link between the cause of support activity costs and the basis for assigning these costs to products
Indirect Materials
Department 2
Other Overhead
Department 3
Stage Two: Costs applied to products
Direct Labour Hours
Machine Hours
Raw Materials
Cost
Products
Departmental Allocation Bases
and then to products.
Departmental Overhead Rates
Indirect
Stage One:
Labor
Costs assigned
to pools
Cost pools
Department 1
Indirect Materials
Department 2
Other Overhead
Companies have tended to use direct labour as the overhead application base.
However direct labour is now a relatively minor part of total manufacturing cost. Many tasks that used to be done by hand are now done by automated equipment.
Causes of problems
❖ Increased product diversity ❖ changing cost structures ❖ use of volume-based cost drivers Have resulted in:
distorted product costs
❖ The result:
High-volume simple products are overcosted and over-priced
Low-volume complex products are under-costed and under-priced
Plantwide Overhead n’t make sense
❖ Problem: There may be no relationship between the overhead application base and the way that different products cause overhead costs
Department 3
Departmental Overhead Rates
Indirect
Stage One:
Labor
Costs assigned
to pools
Cost pools
Department 1
Indirect Materials
Department 2
Other Overhead
Erosion of company profits
❖ Price cuts produce increased sales in units but decreased total revenue
❖ High mark-ups on specialty products didn’t offset the fall in profit margins of high volume products
❖ To compete in the marketplace, some companies have had to cut the prices of high volume popular items.
❖ But They have been able to achieve high mark-ups on low volume specialty products.
Department 3
Stage Two: Costs applied to products
Products
Departmental Overhead Rates
Indirect
Stage One:
Labor
Costs assigned
to pools
Cost pools
Department 1
Departmental Overhead Rates
Finishing Department Painting Department
Shipping Department
A two stage process is necessary because costs are allocated to departments