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Akuntansi Biaya Activity Accounting

Suryadharma Sim, SE, M. Ak

14 Ekonomi dan

Bisnis

S1 Manajemen

Activity Accounting

Activity-Based Costing

An accounting method that identifies the activities that a firm performs, and

then assigns indirect costs to products. An activity based costing (ABC)

system recognizes the relationship between costs, activities and products,

and through this relationship assigns indirect costs to products less

arbitrarily than traditional methods.

Some costs are difficult to assign through this method of cost accounting.

Indirect costs, such as management and office staff salaries are sometimes

difficult to assign to a particular product produced. For this reason, this

method has found its niche in the manufacturing sector.

Activity Accounting

Activity-based costing (ABC) is a better, more accurate way of allocating overhead.

Recall the steps to product costing:

1. Identify the cost object;

2. Identify the direct costs associated with the cost object;

3. Identify overhead costs;

4. Select the cost allocation base for assigning overhead costs to the cost object;

5. Develop the overhead rate per unit for allocating overhead to the cost object.

Activity-based costing refines steps #3 and #4 by dividing large heterogeneous cost

pools into multiple smaller, homogeneous cost pools. ABC then attempts to select, as

the cost allocation base for each overhead cost pool, a cost driver that best captures

the cause and effect relationship between the cost object and the incurrence of

overhead costs. Often, the best cost driver is a nonfinancial variable.

Activity Accounting

How does Activity Based Costing differ from traditional cost accounting

systems?

Most traditional costing systems utilize a single basis, (e.g. direct labor) to

distribute the indirect costs to all products and services. This method of

allocating indirect costs commonly results in erroneous cost data. Often products

which have high volume (and high labor cost) are over costed. Likewise, the cost

of lower volume products are often understated, and many of the indirect costs of

these products are overlooked. Rather than relying on a single basis to distribute

costs, ABC assigns costs to activities and products based on how the costs

(resources) are actually consumed by the process or product. By moving away

from traditional cost allocation methods and using improved ABC methods of

tracing and assignment, ABC provides managers with a clearer picture of cost of

processes and the profitability of customers and products.

Activity Accounting

Definition of Activity Cost Driver

A factor that influences or contributes to the expense of certain business operations. In

activity based costing (ABC), an activity cost driver is something that drives the cost of a

particular activity. A factory, for example, may have running machinery as an activity. The

activity cost driver associated with running the machinery could be machine operating hours,

which would drive the costs of labor, maintenance and power consumption of running the

machinery activity.

Activity-based costing is a type of costing that identifies activities within the business and

estimates the resources required to fulfill each activity. An activity cost driver is a factor that

effects the costs associated with an activity. Activity-based costing allows managers to

determine the costs to perform an activity as well as the costs associated with not performing

the activity For example, when a production line has to wait for a certain part to arrive from an

external distributor or other manufacturing line, the manager can quickly determine the true

cost of waiting for the part. Activity cost drivers attempt to provide a more comprehensive

view of the actual costs of an activity, such as a manufacturing process.

Activity Accounting

Traditional costing

Under a traditional costing system, forklift costs are pooled with all other overhead costs for

the factory (electricity, property taxes, front office salaries, etc.), and then allocated to

product based on direct labor hours (sewing operator time) for each product.

Overhead rate under traditional costing:

Total overhead costs

Quantity of allocation base (direct labor hours)

Overhead rate per direct labor hour

of which the following is due to forklift costs:

Forklift overhead

Quantity of allocation base (direct labor hours)

Overhead rate for forklift costs per direct labor hour

$ 1,498,000

÷ 110,000

$ 13.62

$ 98,000

÷ 110,000

$ 0.8909

Activity Accounting

Forklift overhead applied to product using traditional costing:

Jeans Slacks

Overhead rate

Quantity of allocation base (direct labor hours)

Forklift costs allocated

Units produced

Approximate cost per unit

$ 0.8909

x 70,000

$ 62,363

420,000

$0.15

$ 0.8909

x 40,000

$ 35,636

200,000

$0.18

Note that all forklift overhead is allocated: $62,363 + $35,636 = $97,999 (the difference due

to rounding of the overhead rate).

If the casual slacks product manager asks why her product incurs more forklift costs on a

per-unit basis than jeans, even though casual slacks use a lighter-weight fabric, the answer

is that her product uses more direct labor per unit, which perhaps is not a very satisfying

explanation from her perspective.

Activity Accounting

Activity-based costing

An ABC system might first allocate forklift costs into two cost pools: one for the Receiving

Department and one for the Shipping Department. Then costs from each of these two

departments would be allocated to the two product lines.

ABC first-stage allocation

The first-stage allocation might use an estimate of the amount of time the forklifts spend in

each department. A one-time study indicates that forklifts spend approximately 70% of their

time in the Shipping Department and 30% of their time in the Receiving Department. An

additional benefit of ABC is that if this information were collected periodically, the managers

of these two departments might be more willing to share the forklifts with each other, since

the reported costs of each department would then depend on the time the forklifts spend in

that department. In any case, the 70/30 allocation results in the following first-stage

allocation:

30% of $98,000 = $29,400 is allocated to the Receiving Department

70% of $98,000 = $68,600 is allocated to the Shipping Department

Activity Accounting

ABC second-stage allocation

Receiving Shipping

Total costs

Quantity of allocation base

Overhead rate

Allocation to Jeans

Overhead rate

Quantity of allocation base

Allocation to Slacks

Overhead rate

Quantity of allocation base

$29,400

÷ 2,390 rolls

$12.30 per roll

$12.30 per roll

x 1,750 rolls

$21,525

$12.30 per roll

x 640 rolls

$7,872

$68,600

÷ 72,500 cartons

$0.946 per carton

$0.946 per carton

x 52,500 cartons

$49,665

$0.946 per carton

x 20,000 cartons

$18,920

Activity Accounting

Total forklift costs allocated to each product:

Jeans Slacks Total

From Receiving $21,525 $ 7,872 $29,397

From Shipping 49,665 18,920 68,585

Total $71,190 $26,792 $97,982

Units Produced 420,000 200,000

Approximate Cost per unit $0.17 $0.13

The $18 difference between total costs allocated of $97,982 and the original costs of

$98,000 is due to rounding.

The first-stage allocation allows the second-stage to allocate forklift costs to product using

rolls of fabric as the allocation base in Receiving, and cartons of pants as the allocation base

in Shipping. Since there are no rolls of fabric in the shipping department, and no cartons in

the Receiving Department, without the first stage allocation, there would be no obvious

choice of an allocation base that would capture the cause-and-effect relationship between

the costs of operating the forklifts, and the utilization of forklift resources by each product in

the two departments.

Activity Accounting

Conclusion

The traditional costing method allocates more forklift costs to slacks than to

jeans on a per-unit basis because casual slacks require more sewing effort.

ABC allocates more forklift costs to jeans than to casual slacks, on a per-unit

basis, which is intuitive because denim is a heavier-weight fabric than cotton

twill.

Cost Hierarchy:

In ABC, cost pools are often established for each level in a hierarchy of costs.

For manufacturing firms, the following cost hierarchy is commonly identified:

Activity Accounting

ABC in the Service Sector:

ABC is as important to companies in the merchandising and service sectors as to

manufacturing companies. In fact, although the origination of ABC is generally ascribed to

manufacturing companies in the 1980s, by then hospitals were already allocating

overhead costs to departments and then to patient services using methods similar to

ABC. Hospitals were required to implement relatively sophisticated allocation processes

in order to comply with Medicare reimbursement rules. After its inception in the 1960s,

Medicare established detailed rules regarding how overhead costs should be grouped

into cost pools, and the choice of appropriate allocation bases for allocating overhead

costs to departments and then to patients. Within these rules, hospitals were able to

maximize revenues by shifting costs from areas such as pediatrics, labor and delivery,

and maternity (which have low rates of Medicare utilization) to the intensive care unit, the

critical care unit, and surgery (which have higher rates of Medicare utilization). Other non-

manufacturing industries that have benefited from ABC include financial services firms

and retailers.

Activity Accounting

Activity-Based Management

A procedure that originated in the 1980s for analyzing the processes of a

business to identify strengths and weaknesses. Specifically, activity-based

management seeks out areas where a business is losing money so that those

activities can be eliminated or improved to increase profitability. ABM

analyzes the costs of employees, equipment, facilities, distribution, overhead

and other factors in a business to determine and allocate activity costs.

Activity-based management can be applied to different types of companies,

including manufacturers, service providers, non-profits, schools and

government agencies, and ABM can provide cost information about any area

of operations in a business. In addition to improving profitability, the results of

an ABM analysis can help a company produce more accurate budgets and

financial forecasts.

Activity Accounting

Approach to management that aims to maximize the value adding activities while minimizing

or eliminating non-value adding activities. The overall objective of ABM is to improve

efficiencies and effectiveness of an organization in securing its markets. It draws on activity

based-costing (ABC) as its major source of information and focuses on

(1) reducing costs,

(2) creating performance measures,

(3) improving cashflow and quality and,

(4) producing enhanced value products.

Activity Accounting

Activity-based management (ABM) is a method of identifying and

evaluating activities that a business performs using activity-based costing

to carry out a value chain analysis or a re-engineering initiative to improve

strategic and operational decisions in an organization. Activity-based

costing establishes relationships between overhead costs and activities so

that overhead costs can be more precisely allocated to products, services,

or customer segments. Activity-based management focuses on managing

activities to reduce costs and improve customer value.

Activity Accounting

Kaplan and Cooper (in Kaplan, R. S., & Cooper, R. (1998). Cost and effect:

Using integrated cost systems to drive profitability and performance. Boston:

Harvard Business School Press.) divide ABM into operational and strategic:

Operational ABM is about “doing things right”, using ABC information to

improve efficiency. Those activities which add value to the product can be

identified and improved. Activities that don’t add value are the ones that need

to be reduced to cut costs without reducing product value.

Strategic ABM is about “doing the right things”, using ABC information to

decide which products to develop and which activities to use. This can also be

used for customer profitability analysis, identifying which customers are the

most profitable and focusing on them more.

Activity Accounting

A risk with ABM is that some activities have an implicit value, not necessarily

reflected in a financial value added to any product. For instance a particularly

pleasant workplace can help attract and retain the best staff, but may not be

identified as adding value in operational ABM. A customer that represents a

loss based on committed activities, but that opens up leads in a new market,

may be identified as a low value customer by a strategic ABM process.

Managers should interpret these values and use ABM as a “common, yet

neutral, ground … this provides the basis for negotiation” (Kennedy, T., & Bull,

R. (2000). The great debate. Management Accounting, 78). ABM can give

middle managers an understanding of costs to other teams to help them make

decisions that benefit the whole organisation, not just their activities' bottom

line.

Terima Kasih Suryadharma Sim, SE, M. Ak