ACG2071 Chapter 4 (Principles of Managerial Accounting)

An activity is a task, operation, or procedure that causes a cost to be incurred, such as quality inspection, warranty services, or shipping.

Unit level: Activities occur each time an individual unit is produced or an individual service is performed. For example, Smart Touch Learning uses machines to assemble the tablets. As more tablets are produced, the machines are used more, and electricity costs increase.

Batch level: Activities occur each time a group of products are produced or a series of steps are performed regardless of the number of units or steps in the batch. For example, each batch of tablets produced requires machine calibration. As more batches are produced, the cost of setup is increased.

Product level: Activities occur that affect the entire product line. For example, if the Premium model of tablets need a design modification, the cost applies to the entire product line.

Facility level: Activities occur that affect the entire facility (or production process) but generally are not affected by the volume of production. Examples include factory rent, factory property taxes, and factory insurance.

Value engineering means evaluating activities to reduce costs while still meeting customer needs.

Cost Based: Product Cost + Desired profit = Sales Price

Target: Sales price that will sell - Profit desired = Target Cost

Quality management systems (QMS) are systems that help managers improve the business’ performance by providing quality products and services.

1. Prevention costs: costs incurred to avoid poor-quality goods or services.

2. Appraisal costs: costs incurred to detect poor-quality materials, goods, or services.

3. Internal failure costs: costs incurred when the company corrects poor-quality goods or services before delivery to customers.

4. External failure costs: costs incurred after the company delivers poor-quality goods or services to customers and then has to make things right with the customer.

Just-in-time management Transactions (Next Slides)

*Image shows underallocation (Just like Underallocated Manufacturing Overhead)

Desired Profit: \$12.50 (0.10) = \$12.50