ACG2071 Chapter 4 (Principles of Managerial Accounting)
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1
Activity
An activity is a task, operation, or procedure that causes a cost to be incurred, such as quality inspection, warranty services, or shipping.
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Types of Levels for an Activity?
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.
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.
3
Value engineering
Value engineering means evaluating activities to reduce costs while still meeting customer needs.
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Cost Based Pricing vs Target Based Pricing
Cost Based: Product Cost + Desired profit = Sales Price
Target: Sales price that will sell - Profit desired = Target Cost
Target: Sales price that will sell - Profit desired = Target Cost
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Activity Based management Steps
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Quality management systems (QMS)
Quality management systems (QMS) are systems that help managers improve the business’ performance by providing quality products and services.
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Types of Quality Costs
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.
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.
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Just-in-time management Transactions (Next Slides)
Just-in-time management Transactions (Next Slides)
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Transaction 1––Purchased Materials
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Transaction 2–Incurred Labor and Manufacturing Overhead Costs
Smart Touch Learning incurred \$239,200 for labor and manufacturing overhead.
Smart Touch Learning incurred \$239,200 for labor and manufacturing overhead.
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Transaction 3– Completed Production
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Transaction 4––Sold Tablets
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*Image shows underallocation (Just like Underallocated Manufacturing Overhead)
Transaction 5––Adjusted the Conversion Costs Account
Underallocated and overallocated Conversion Costs are treated just like underallocated and overallocated Manufacturing Overhead.
Underallocated and overallocated Conversion Costs are treated just like underallocated and overallocated Manufacturing Overhead.
*Image shows underallocation (Just like Underallocated Manufacturing Overhead)
14
What is the desired profit?
Target Selling Price: \$12.50
10 %net profit margin
Target Selling Price: \$12.50
10 %net profit margin
Desired Profit: \$12.50 (0.10) = \$12.50
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