Accounting

ACCT 6205 MANAGERIAL ACCOUNTING I

ACTIVITY-BASED COSTING

KEY CONCEPTS

Traditional Costing Systems

ABC

Issues with ABC

1

ACCT 6205 MANAGERIAL ACCOUNTING I

SOME BASIC ALGEBRA REVISION BEFORE YOU START

(CLASS PREP)

1.

A group of six friends goes to dinner together. Amy, Brian, Connor, Raj,

Rachel and Adil. Adil and Rachel are vegetarian, while Brian is a

teetotaler. The restaurant is pricey and the meat dishes are more

expensive than the vegetarian ones. The total bill came to 357 dollars

which includes 203 dollars for meat entrees and 150 dollars for

vegetarian entrees and 104 dollars for drinks. What is each friend’s share

if they decide to divide it equally? Is it fair? Do you have any alternative

suggestions for sharing the bill? (Note: vegetarian dishes are shared by

all and consumption in terms of quantity of food and drinks is quite

similar).

2

ACCT 6205 MANAGERIAL ACCOUNTING I

2.

ABC Inc makes two products – Slim and Bulky. ABC makes 3000 units

of Slim and 1500 units of bulky each month. Material cost for Slim and

Bulky is 20 pu and 30 pu. Labor cost is 10 per hours. Slim uses 4 hours

pu and Bulky uses 2 hours pu. It incurs MOH of 150,000 allocated on

the basis of labor hours. It includes rent 75,000 and electricity 75,000.

Slim and Bulky both are priced at a 10% markup over cost. Both are

made at the same facility in a shared space. Machinery for bulky is huge

so it ends up occupying half the space. Both the products use machine

time. Electricity usage for the machinery seems to be in line with labor

hours. Show cost pu for Slim and Bulky. Is the choice of cost driver

appropriate? Do you have any recommendations?

Units

Slim

3,000

Bulky

1,500

Material

Labor

MOH

Total Cost

Cost per unit

Selling price per unit

Amt

60,000

120,000

120,000

300,000

100

110

Amt

45,000

30,000

30,000

105,000

70

77

Units

Slim

3,000

Bulky

1,500

Amt

60,000

120,000

Amt

45,000

30,000

37,500

60,000

277,500

92.50

101.75

37,500

15,000

127,500

85.00

93.50

Material...