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Activity Based Costing Example

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					                 WHITE CELLS ARE ADJUSTABLE
                                                                                                                                                                                         © Kristoffer Burnett - Certified Management Accountant, 2009-2011
                                                                                                                                                                                               Small business solutions at http://www.imperoco.com
                Activity Based Costing Example

  Product Profitability Analysis               1
                                            Item1           Item2           Item3         Item4         Item5
                 Sales
Sales units                                  14,790          12,853           24,311        12,395        31,021
Sales dollars                           $ 2,298,366     $ 3,435,928      $ 3,822,905   $ 3,233,236   $ 3,156,387

             Direct Costs
Direct materials                          (378,953)   (1,696,401)   (1,129,207)   (1,040,302)     (938,312)
Direct labor                              (598,320)     (294,637)     (888,315)     (600,617)     (868,180)
Total direct costs                      $ (977,273) $ (1,991,038) $ (2,017,522) $ (1,640,919) $ (1,806,492)

              Activities
Research & development                         -      (308,649)                   -            -        (308,649)
Procure materials                         (361,244)   (437,444)              (397,933)    (437,444)     (262,466)
Manufacturing                             (333,640)   (406,624)              (375,345)    (417,050)     (239,804)
Shipping                                  (114,314)   (141,907)              (126,140)    (137,965)      (86,721)
Marketing/customer service                (100,167)   (114,477)              (100,167)    (114,477)      (71,548)
Total allocated costs                     (909,366) (1,409,101)              (999,585)  (1,106,937)     (969,188)
Total item margin                       $ 411,727 $     35,789 $              805,798 $    485,380 $     380,707

Share of unallocated costs                  (58,109)         (58,109)         (58,109)     (58,109)      (58,109)
Total item operating profit             $   353,618 $        (22,320) $       747,689 $    427,271 $     322,598

        Per Unit Breakdown
Average sales price per unit            $     155.40 $        267.32 $         157.25 $     260.85 $      101.75 Sales dollars / Sales units
Direct and allocated cost per unit           (127.56)        (264.54)         (124.10)     (221.69)       (89.48) (Total direct costs + Total allocated costs) / Sales units
Item margin per unit                    $      27.84 $          2.78 $          33.15 $      39.16 $       12.27
Unallocated cost per unit                      (3.93)          (4.52)           (2.39)       (4.69)        (1.87) Share of unallocated costs / Sales units
Operating profit per unit               $      23.91 $         (1.74) $         30.76 $      34.47 $       10.40


     $300                                                                   Operating Profit by Item


     $250




     $200




     $150
                                                                                                                                                                      Sales Price

                                                                                                                                                                      Full cost
     $100
                                                                                                                                                                      Operating profit



       $50




        $0




      -$50
                          Item1                          Item2                         Item3                       Item4                        Item5




Notes
1 Costs are reflected as (negative) in this section to better contrast with sales.
                   WHITE CELLS ARE ADJUSTABLE
                                                                                                                                         © Kristoffer Burnett - Certified Management Accountant, 2009 -2011
                                                                                                                                               Small business solutions at http://www.imperoco.com
                Activity Based Costing Example

      Item and Sales Information

Item                                             Item1       Item2       Item3       Item4       Item5
Sales units                                    14,790      12,853      24,311      12,395      31,021
Sales dollars                             $ 2,298,366 $ 3,435,928 $ 3,822,905 $ 3,233,236 $ 3,156,387

        Direct Cost Information
                                                                                                                          Total
Direct materials                              378,953      1,696,401      1,129,207      1,040,302        938,312      $ 5,183,175
Direct labor                                  598,320        294,637        888,315        600,617        868,180        3,250,069

      Activity Metric Breakdown           The activity metrics are specified on the Analysis worksheet
                                             Item1            Item2          Item3          Item4         Item5           Total      1
Number of products designed                         -                1             -             -                 1            2
Number of POs                                      128             155            141            155              93          672
Number of manufacturing batches                       32            39               36            40             23          170
Number of shipments                                   29            36               32            35             22          154
Number of customers                                    7             8                7             8              5           35



Notes
1 For the purposes of this example, a value of "1" means that this item was developed during the relevant period.
               WHITE CELLS ARE ADJUSTABLE                                                                                                                                    © Kristoffer Burnett - Certified Management Accountant, 2009-2011
                                                                                                                                                                                   Small business solutions at http://www.imperoco.com
             Activity Based Costing Example

          Cost Outline

          COGS Expenses              Amount
Direct materials                   $ 5,183,175 Direct costs are broken out by item on the Data worksheet
Direct labor                         3,250,069 "
Indirect labor                         499,999
Misc employee expenses                 100,000
Supplies                               157,142
Maintenance                            271,428
Freight in                             642,856
Depreciation                           499,999
Utilities                              328,571
Lease expense                          357,142
Total COGS expenses                $11,290,381         1


         Operating Expenses          Amount
Salaries                           $   466,552
Misc employee expense                  268,621
Supplies                                42,414
Maintenance                            212,069
Shipping                               664,483
Depreciation                           342,845
Utilities                              307,500
Lease expense                          523,103
Total operating expenses           $ 2,827,587


        Identify Activities              2


             Activity                         Metric
Research & development             Number of products designed
Procure materials                  Number of POs
Manufacturing                      Number of manufacturing batches
Shipping                           Number of shipments
Marketing/customer service         Number of customers


  Cost Breakdown by Activity

          COGS Expenses                             Research & development               Procure materials                  Manufacturing                      Shipping                Marketing/customer service             Unallocated
Direct materials                   $ 5,183,175                                                                                                                                                                                                        Direct costs are already traceable to the individual items and do not need to be allocated
Direct labor                         3,250,069                                                                                                                                                                                                        The sum of the percentages must = 100%
Indirect labor                         499,999                0%              -              50%         250,000              50%         250,000                  0%            -               0%             -               0%              -
Misc employee expenses                 100,000                0%              -              30%          30,000              35%          35,000                  0%            -               0%             -              35%           35,000
Supplies                               157,142                0%              -              75%         117,857              25%          39,286                  0%            -               0%             -               0%              -
Maintenance                            271,428                0%              -              30%          81,428              70%         190,000                  0%            -               0%             -               0%              -
Freight in                             642,856                0%              -              70%         449,999              30%         192,857                  0%            -               0%             -               0%              -
Depreciation                           499,999                0%              -              55%         274,999              45%         225,000                  0%            -               0%             -               0%              -
Utilities                              328,571                0%              -              30%          98,571              65%         213,571                  0%            -               0%             -               5%           16,429
Lease expense                          357,142                0%              -              40%         142,857              55%         196,428                  0%            -               0%             -               5%           17,857
         Operating Expenses
Salaries                                466,552             25%          116,638             25%         116,638              10%          46,655              25%          116,638             15%         69,983              0%              -
Misc employee expense                   268,621             20%           53,724             15%          40,293              20%          53,724              10%           26,862             25%         67,155             10%           26,862
Supplies                                 42,414             20%            8,483             10%           4,241              25%          10,604              20%            8,483             25%         10,604              0%              -
Maintenance                             212,069             25%           53,017             15%          31,810              15%          31,810              20%           42,414             25%         53,017              0%              -
Shipping                                664,483             25%          166,121             10%          66,448              10%          66,448              20%          132,897             15%         99,672             20%          132,897
Depreciation                            342,845             20%           68,569             15%          51,427              25%          85,711              30%          102,854             10%         34,285              0%              -
Utilities                               307,500             15%           46,125             20%          61,500              10%          30,750              15%           46,125             20%         61,500             20%           61,500
Lease expense                      $    523,103             20%          104,621             15%          78,465              20%         104,621              25%          130,776             20%        104,621              0%              -
Totals                                                             $     617,298                   $   1,896,535                    $   1,772,464                       $   607,048                   $    500,836                   $      290,544

          Activity Metric          These totals are pulled from the Data worksheet
Number of products designed                                                      2
Number of POs                                                                                                  672
Number of manufacturing batches                                                                                                                170
Number of shipments                                                                                                                                                              154
Number of customers                                                                                                                                                                                               35
Activity cost per measure                                          $     308,649                   $         2,822                  $       10,426                      $   3,941.87                  $   14,309.61                  $      290,544 totals / Total of the Activity Metric on the Item Information worksheet




Notes
1 These figures should represent actual amounts spent. Therefore, they may not match what is shown on the income statement due to the use of accrual accounting.
2 For simplicities sake, only a handful of activities are initially recommended. This is to help assure that the costs associated with data collection
  does not outweigh the benefits.

				
DOCUMENT INFO
Description: Activity based costing (ABC) is a means by which indirect costs are allocated to individual items based on the activity that drives those costs. Ordinarily, ABC does not conform with generally accepted accounting principles (GAAP).