Kế toán, kiểm toán - Chapter 21: Cost allocation and performance measurement

Chapter 21COST ALLOCATION AND PERFORMANCE MEASUREMENT Jobs Direct Labor HoursMachineHoursRawMaterialsCostDepartmental Allocation BasesStage Two:Costs appliedto jobsStage One:Costs assignedto departmentsTWO-STAGE COST ALLOCATIONServiceDept. 2ServiceDept. 3ServiceDept. 1OperatingDept.1OperatingDept. 2OperatingDept. 3P 1With the Activity-BasedCosting (ABC) method, we recognize that many activities within a department drive overhead costs.ABCACBACTIVITY-BASED COST ALLOCATIONIdentify activities and assign indirect costs to those activities.Central idea . . .Products require activities.Activities consume resources.P 2ACTIVITY-BASED COSTING STEPS Identify activities that consume resources. Assign costs to a cost pool for each activity. Identify cost drivers associated with each activity. Compute overhead rate for each cost pool: Assign costs to products: Overhead Actual Rate Activity×Rate = Estimated overhead costs in activity cost pool Estimated number of activity units P 2DEPARTMENTAL EVALUATION The accounting system provides information about resources used and outputs achieved. Managers use this information to control operations, appraise performance, allocate resources, and plan strategy. The type of accounting information provided depends on whether the department is a . . .Evaluated on ability tocontrol costs.CostcenterEvaluated on abilityto generate revenuesin excess of expenses. ProfitcenterEvaluated on abilityto generate return on investment in assets. InvestmentcenterC 1 Direct expenses are incurred for the sole benefit of a specific department. Indirect expenses benefit more than one department and are allocated among departments benefited.DEPARTMENTAL EXPENSE ALLOCATIONC 1Service Dept. OneService Dept. TwoDirect expenses are traced to eachdepartment without allocation.STEP 1: DIRECT EXPENSEACCUMULATIONP 3Operating Dept. OneOperating Dept. TwoIndirect expenses are allocated to all departmentsusing appropriate allocation bases. AllocationAllocationAllocationAllocationSTEP 2: INDIRECTEXPENSE ALLOCATIONP 3Operating Dept. OneOperating Dept. TwoService Dept. OneService Dept. TwoOperating Dept. OneOperating Dept. TwoService department total expenses (original direct expenses + allocated indirect expenses) areallocated to operating departments. AllocationAllocationSTEP 3: SERVICE DEPARTMENT EXPENSE ALLOCATIONP 3Service Dept. OneService Dept. Two Departmental contribution . . . Is used to evaluate departmental performance.Is not a function of arbitrary allocations of indirect expenses. Departmental revenue– Direct expenses = Departmental contributionDEPARTMENTAL CONTRIBUTIONTO OVERHEADA department may be a candidate for elimination when its departmental contribution is negative.P 3INVESTMENT CENTER RETURNON TOTAL ASSETS (ROI)ROI = Investment Center Net IncomeInvestment Center Average Invested AssetsLCD Division earned more dollars of income, but it was lessefficient in using its assets to generate income comparedto S-Phone Division.A 1ResidualIncomeInvestment CenterNet IncomeTarget InvestmentCenter Net Income=–INVESTMENT CENTERRESIDUAL INCOME The target net income is 8% of divisional assets.A 1Innovation and LearningHow can we continuallyimprove and create value?Internal Business ProcessesIn which activities must we excel?BALANCED SCORECARDPerformance MeasuresFinancial PerspectiveHow do we lookto the firm’s owners?Customer PerspectiveHow do our customers see us?A 1An accounting system thatprovides information . . . RESPONSIBILITY ACCOUNTING SYSTEMRelating to theresponsibilities ofindividual managers.To evaluatemanagers oncontrollable items.C 2Amount of detail varies according to the level in the organization.A department manager receives detailed reports.A store manager receives summarized information from each department.RESPONSIBILITY ACCOUNTINGPERFORMANCE REPORTSC 2INVESTMENT CENTER PROFIT MARGINAND INVESTMENT TURNOVERA 2Return oninvestment (ROI)=ProfitMarginInvestmentturnover×Domestic ROI = 16.64%International ROI = 2.56%END OF CHAPTER 21