Activity Expected Cost Activity Driver Activity Capacity

Setup $ 60,000 Number of setups 300

Inspecting $ 20,000 Inspection hours 2,000
Grinding $ 90,000 Machine hours 18,000
Receiving ? Number of parts 60,000
The company produces two different machine subassemblies used Dy other manulacturers. Expected annual dala f

Subassembly A Subassembly B
Direct materials $ 340,000 $ 380,000
Direct labor $ 240,000 $ 240,000
Units completed 40,000 50,000
Number of setups 150 150
Inspection hours 1,500 500
Machine hours 7,200 10,800
Parts used 20,000 40,000
Upon investigation, you discover that the Receiving Department employs one worker who spends
40 percent of his time on the receiving activity and 25 percent of his time on inspecting products.
His salary is $50,000. Receiving also uses a forklift, at a cost of $10,000 per year for depreciation
and fuel. The forklift is used only in receiving.

Required
1. Determine the cost of the Receiving activity
2. Assign the overhead costs to each product using ABC.
3. Now approximate the ABC assignments using the two most expensive activities to form cost
pools (the cost of the less expensive activities are allocated to the expensive activities in
proportion to their original cost).
4. What is the percentage error from using the approximation in Requirement 3 (for each product)?
Explain why this simplification may be a good approach to use.

1. Expected Cost receiving

Salary Worker $ 50,000
Spend on receiving 40%
Net Salary Receiving $ 20,000
Cost Forklit $ 10,000
Receiving Cost $ 30,000
 rers. Expected annual dala for the two subassemblies follow:

who spends

ch product)?

2. ABC 3. Cost Pool

Cost: Setup Pool
Setup $ 200 Grinding Pool
Inspecting $ 10 Rate
Grinding $ 5 Setup
Receiving $ 0.5 Grinding

Overhead Subasembly A Sumbasembly B Assignment

Setup $ 30,000 $ 30,000 Setup
Inspecting $ 15,000 $ 5,000 Grinding
Grinding $ 36,000 $ 54,000 Total Cost
Receiving $ 10,000 $ 20,000
Total Cost $ 91,000 $ 109,000
3. Cost Pool 4. Error
Setup Pool $ 80,000 Setup
Grinding Pool $ 120,000 Grinding

266.67
Grinding 6.67

Assignment Subasembly A Subasembly B

40,000 40,000
Grinding 48,000 72,000
Total Cost 88,000 112,000
 3.30%
-2.75%
1. Overhead Activities
Unit level Machine hours
Batch level Setups Packing Orders
Product level Receiving orders
Facility level -

2. ABC
Activity Rate
Machine Hour #DIV/0!
Setups #DIV/0!
Receiving Orders #DIV/0!
Packing Orders #DIV/0!

Overhead Assignment Infactry Special Forces

Machine Hour #DIV/0! #DIV/0!
Setups #DIV/0! #DIV/0!
Receiving Orders #DIV/0! #DIV/0!
Packing Orders #DIV/0! #DIV/0!
Total Cost #DIV/0! #DIV/0!

Combine: Setups and Packing Orders

Cost Setups $ -
Cost Packing Orders $ -
Total $ -
Pool rate #DIV/0! per set up
Overhead Assignmnet (Comb Infactry Special Forces Total
Machine Hours #DIV/0! #DIV/0! #DIV/0!
Setups #DIV/0! #DIV/0! #DIV/0!
Receiving Orders #DIV/0! #DIV/0! #DIV/0!
Total Cost (Combine) #DIV/0! #DIV/0!

3. Cost Pool
Pool rates
Machine Hours #DIV/0! per machine hours
Setups #DIV/0! per setups

Overhead Assignments Infactry Special Forces

Machine Hours #DIV/0! #DIV/0!
Setups #DIV/0! #DIV/0!
Total Cost #DIV/0! #DIV/0!

4. Error
Machine Hours #DIV/0!
Setups #DIV/0!
Pearson Manufacturing is engaged in the production of chemicals for industrial use. One plant specializes in the pro
compound S-15. Compound X- 12 was originally developed by Pearson’s chemists and played a key role in copper e
intensified dramatically. Compound X-12 produced the highest vol- ume of activity and for many years was the only
difficult to manufacture and required special handling and setups. For the first three years after the addition of the
and its sales of X-12 have dropped. In fact, the plant showed a small loss in the most recent reporting period. The p
produce it—perhaps with the objective of expanding their market shares. The fol- lowing conversation between Dia
the division about the future of the plant and its products.

Rick: You know, Diane, the divisional manager is very concerned about the plant’s trend. He indicated that in this b
last month because it couldn’t handle the competition.

Diane: Rick, our compound X-12 has a reputation for quality and value—we have a very pure product. It has been a

Rick: I just received a call from one of our major customers concerning X-12. He said that a sales representative fro
to compete with a price like that. Perhaps the plant is simply obsolete.

Diane: No. I don’t agree. We have good technology. I think that we are efficient. And it’s costing a little more than $
convinced that we should meet the price. Perhaps we should emphasize producing and selling more of S-15. Our m
price per kilogram, and our customers didn’t blink an eye.

Rick: You may be right. I think we can increase the price even more and not lose busi- ness. I called a few customer
purchase the same quantity as before.

Diane: It sounds promising. However, before we make a major commitment to S- 15, I think we had better explore
our production costs compare to our competitors. Perhaps we could be more efficient and find a way to earn our n

After meeting with Rick, Diane requested an investigation of the production costs and comparative efficiency. Indep
following information on the plant’s production activities and costs associated with the two products:

X-12 S-15
Production (Kg) 1,000,000 200,000
Selling Price $ 15.93 $ 12.00
Overhead Per Unit* $ 6.41 $ 2.89
 Prime Cost per Kg $ 4.27 $ 3.13
Number of Production Runs 100 200
Receiving Orders 400 1,000
Machine Hours 125,000 60,000
Direct Labor Hours 250,000 22,500
Engineering Hours 5,000 5,000
Material Handling (Number of Moves) 500 400

Setup Costs $ 240,000.00

Machine Costs $ 1,750,000.00
Receiving Costs $ 2,100,000.00
Engineering Costs $ 2,000,000.00
Material-handling Costs $ 900,000.00
Total $ 6,990,000.00

The consulting group recommended switching the overhead assignment to an activity-based approach. It maintaine
decision making. To facilitate this recommendation, the plant’s activities were grouped into homogeneous sets bas

Required
1. Verify the overhead cost per unit reported by the consulting group using direct labor hours to assign overhead. C
2. Should
3. Recompute the unit cost
the company of each
switch productfrom
its emphasis usingthe
activity-based
high-volumecosting.
productCompute the per-unitproduct?
to the low-volume gross margin for eac
Comment o
compound X-12.
4. Explain the apparent lack of competition for S-15. Comment also on the will- ingness of customers to accept a 25
5. Describe what actions you would take based on the information provided by the activity-based unit costs.

Answer
1. Gross Margin
OH Rate = Total OH Cost / Direct Labour Hour
6.990.000 / 272.500
OH Rate = 25.6514

OH Assigment :
OH Rate * (DLH X-12 / Production X-12)
X-12 =
25,65*(250.000/1.000.000)
X-12 = 6.41284403669725
S-15 = OH Rate * (DLH S-15 / Production S-12)
25,65*(22.500/200.000)
S-15 = 2.88577981651376
Unit Gross Margin X-12 S-15
Price $ 15.93 $ 12.00
Cost $ 10.68 $ 6.02
Gross Margin $ 5.25 $ 5.98

3. Komentar mengenai validitas kekhawatiran manajer pabrik bahwa para pesaing menjual di bawah harga biaya pr
Tidak, biaya pembuatan X-12 sebesar $7,63 yang mana lebih kecil dari jumlah yang ditunjukkan oleh penetapan bia
Perusahaan dapat bersaing dengan menurunkan harga pada produk bervolume tinggi yang diproduksi dalam jumla
Harga $10 yang ditawarkan pesaing, tidak keluar dari garis. Kekhawatiran tentang penjualan dibawah biaya tidak be

4. Komentar mengenai kesediaan pelanggan untuk menerima kenaikan harga sebesar 25% untuk produk ini
Harga $12 untuk S-15 jauh dibawah biaya produksinya. Hal ini menjelaskan, mengapa Pearson tdiak memiliki pesain
mengapa pelanggan bersedia membayar $15, harga yang mungkin masih jauh dibawah penawaran pesaing.

5. Tindakan yang akan dilakukan berdasarkan informasi yang diberikan oleh biaya satuan berbasis aktivitas
Harga X-12 harus diturunkan ke tingkat yang kompetitif dan harga S-15 dinaikkan. Sehingga keuntungan yang wajar
. One plant specializes in the production of chemicals used in the copper industry. Two compounds are produced: compound X-12 and
nd played a key role in copper extraction from low-grade ore. The patent for X-12 has expired, and competition in this market has
and for many years was the only chemical compound produced by the plant. Five years ago, S-15 was added. Compound S-15 was more
e years after the addition of the new product, profits increased. In the last two years, however, the plant has faced intense competition,
t recent reporting period. The plant manager is convinced that competing producers have been guilty of selling X-12 below the cost to
owing conversation between Diane Woolridge, plant manager, and Rick Dixon, divisional marketing manager, reflects the concerns of

rend. He indicated that in this budgetary environment, we can’t afford to carry plants that don’t show a profit. We shut one down just

very pure product. It has been a mainstay for years. I don’t understand what’s happening.

d that a sales representative from another firm had offered the chemical at $10 per kilogram—about $6 less than what we ask. It’s hard

d it’s costing a little more than $10 to produce X-12. I don’t see how these com- panies can afford to sell it so cheaply. I’m not
and selling more of S-15. Our mar- gin is high on this product, and we have virtually no competition for it. We just recently raised the

si- ness. I called a few customers to see how they would react to a 25 percent increase in price, and they all said that they would still

5, I think we had better explore other possible explanations. The market potential is much less than that for X-12. I want to know how
ent and find a way to earn our normal return on X-12. Besides, my production people hate producing S-15. It’s very difficult to produce.

nd comparative efficiency. Independent consultants were hired. After a three- month assessment, the consulting group provided the
the two products:

TOTAL Pearson Manufacturing:

X-12 volume aktivitas tertinggi, original
S-15 baru ditambahkan
 300
1,400
185,000
272,500
10,000
900

ity-based approach. It maintained that activity-based costing assignment is more accurate and will provide better information for
ped into homogeneous sets based on common consumption ratios. The costs of these pooled activities follow:

bor hours to assign overhead. Compute the per-unit gross margin for each product.
he per-unitproduct?
w-volume gross margin for each
Comment product.
on the validity of the plant manager’s concern that competitors are selling below the cost of producing

ness of customers to accept a 25 percent increase in price for this compound.

activity-based unit costs.

2. ABC
Pool Driver Pool Rate
Setup Number of Production Runs 800
Machine Machine Hours 9.45945945945946

Receiving Receiving Orders 1500

Engineering Hours 200
Engineering
Material Handling (Number of Moves) 1000
Material-handling

OH Assignment X-12 S-15

Setup costs 80,000 160,000
Machine costs 1182500 567600
Receiving costs 600,000 1,500,000
 Engineering costs 1,000,000 1,000,000
Material-handling costs 500,000 400,000
Total OH Cost 3,362,500 3,627,600
Unit Produced 1,000,000 200,000
OH / Unit $ 3.36 $ 18.14
Prime Cost $ 4.27 $ 3.13
Unit Cost $ 7.63 $ 21.27

Selling Price $ 15.93 $ 12.00

Unit Cost $ 7.63 $ 21.27
Gross Margin $ 8.30 $ -9.27

menjual di bawah harga biaya produksi senyawa X-12

ditunjukkan oleh penetapan biaya berbasis functional based costing.
ggi yang diproduksi dalam jumlah banyak.
enjualan dibawah biaya tidak berdasar.

ar 25% untuk produk ini

pa Pearson tdiak memiliki pesaing, dan
wah penawaran pesaing.

atuan berbasis aktivitas

ehingga keuntungan yang wajar dapat diperoleh
compound X-12 and
this market has
pound S-15 was more
intense competition,
12 below the cost to
cts the concerns of

shut one down just

what we ask. It’s hard

ply. I’m not

recently raised the

at they would still

want to know how

y difficult to produce.

roup provided the

nformation for

e cost of producing
Muebles Products manufactures a line of high-quality recliners in two plants, one in Lincoln and the other in Santa
During the past year, both plants sold the regular model for $720. Sales volume averages 20,000 units per year in e
reduced the price of the regular model to $640. Discussion with the Santa Clara manager revealed that the price re
reduced its manufacturing and selling costs by decreasing “non-value-added costs.” The Santa Clara plant’s manufa
were $560 per unit. The Santa Clara manager offered to lend the Lincoln plant his cost accounting manager to help
manager readily agreed, knowing that his plant must keep pace—not only with the Santa Clara plant but also with c
reduced its price on a similar model, and Lincoln’s marketing manager had indicated that the price must be matche
marketing manager suggested that if the price were dropped to $624 by the end of the year, the plant could expan
plant manager agreed but insisted that the current profit per unit must be maintained, and he wants to know if the
cost of the Santa Clara plant. He also wants to know if the plant can achieve the cost reduction using the approach
and the Santa Clara cost accounting manager have assem- bled the following data for the most recent year. The act
quantity levels, and the actual quantity levels are provided (for production of 20,000 units). Assume there is no diff
and standard prices.

SQ AQ Actual Cost
Materials (lb.) 380,000 400,000 $ 8,400,000
Labor (hr.) 91,200 96,000 $ 1,200,000
Setups (hr.) - 6,400 $ 480,000
Material handling (moves) - 16,000 $ 1,120,000
Warranties (number repaired) - 16,000 $ 1,600,000
TOTAL $ 12,800,000

Required
1. Calculate the non-value-added cost per unit. Assuming that non-value-added costs can be reduced to zero, can t
Lincoln plant match the Santa Clara plant’s per-unit cost? Can expanding market share be achieved? What actions
would you take if you were the plant manager?
2. Describe the role benchmarking played in the efforts of the Lincoln plant to protect and improve its competitive

Answer
1. NVA Cost Per Unit
a) Mencari SP
SP = Actual cost
Actual quantity
SP
Materials (lb.) 21
Labor (hr.) 12.5
Setups (hr.) 75
Material handling (moves) 70
Warranties (number repaired) 100

b) Mencari NVA
NVA
Materials (lb.) $ 420,000.00
Labor (hr.) $ 60,000.00
Setups (hr.) $ 480,000.00
Material handling (moves) $ 1,120,000.00
Warranties (number repaired) $ 1,600,000.00
TOTAL NVA $ 3,680,000.00

c) Mengurangi NVA per unit ke cost per unit

NVA Per Unit = 184

Cost per unit = $ 640

NVA per unit = $ 184
Cost per unit - NVA per unit = $ 456

d) Membandingkan dengan Cost Santa Clara

Santa clara berharga 560 dolar, sedangkan produk Muebles berharga 456 dolar. Oleh karena itu, dapat disimpulkan
harga produk Muebles lebih murah dibandingkan harga produk dari pabrik Santa Clara. Dengan cara ini, Muebles P
dapat bersaing dengan biaya Santa Clara. Begitu pula dengan target biaya untuk meningkatkan pangsa pasar. Seber
pengurangan biaya dapat dicapai adalah pertanyaan lain, karena pabrik Santa Clara berpengalaman dalam mencap
pengurangan biaya sehingga V0 dapat dicapai dalam waktu yang singkat. Perusahaan akan berlajar banyak dari pab
Clara dan akan mencoba dengan cepat mengurangi biaya NVA dan menurunkan harga menjadi 624 dolar, serta me
keuntungan dari pertumbuhan pangsa pasar, bahkan jika itu berarti mengurangi keuntungan jangka pendek.

2) Peran brenchmarking untuk mempertahankan dan meningkatkan posisi kompetitif

Brenchmarking adalah cara bagi bisnis untuk mempelajari dan membandingkan dengan bisnis lain bagaimana meng
mengurangi atau menghilangkan NVA.

Brenchmarking memainkan peran komparatif yang penting. Pabrik Santa Clara menetapkan standar dan menawark
berbagi informasi tentang cara mengurangi biaya guna membantu menurunkan harga jual.
 ncoln and the other in Santa Clara. Each plant is set up as a profit center.
ges 20,000 units per year in each plant. Recently, the Santa Clara plant
ger revealed that the price reduction was possible because the plant had
he Santa Clara plant’s manufacturing and selling costs for the regular chair
t accounting manager to help it achieve similar results. The Lincoln plant
nta Clara plant but also with competi- tors. A local competitor had also
hat the price must be matched or sales would drop dramatically. In fact, the
e year, the plant could expand its share of the mar- ket by 20 percent. The
d, and he wants to know if the plant can at least match the $560-per-unit
eduction using the approach of the Santa Clara plant. The plant controller
the most recent year. The actual cost of inputs, their value-added (ideal)
units). Assume there is no difference between actual prices of activity units

can be reduced to zero, can the

e be achieved? What actions

and improve its competitive position.

 karena itu, dapat disimpulkan bahwa
a. Dengan cara ini, Muebles Produce
ngkatkan pangsa pasar. Seberapa cepat
erpengalaman dalam mencapai
akan berlajar banyak dari pabrik Santa
a menjadi 624 dolar, serta mengambil
tungan jangka pendek.

an bisnis lain bagaimana menghilangkan,

apkan standar dan menawarkan untuk

Question

Oaklawn National Bank has requested an analysis of checking account profitability by customer type. Customers are
balances, medium balances, and high balances. The activities associated with the three different customer categori

Opening and closing accounts $ 200,000

Issuing monthly statements $ 300,000
Processing transactions $ 2,050,000
Customer inquiries $ 400,000
Providing ATM services $ 1,120,000
Total cost $ 4,070,000

Additional data concerning the usage of the activities by the various customers are also provided:
Account Balance
Low Medium
Number of accounts opened/closed 15,000 3,000
Number of statements issued 450,000 100,000
Processing transactions 18,000,000 2,000,000
Number of telephone minutes 1,000,000 600,000
Number of ATM minutes 1,350,000 200,000
Number of checking accounts 38,000 8,000

Required
1. Calculate the cost per account per year by dividing the total cost of processing and maintaining checking account
fee per month that the bank should charge to cover the costs incurred because of checking accounts?
2. Calculate the cost per account by customer category using activity rates.

3. Currently, the bank offers free checking to all its customers. The interest revenues average $90 per account; how
category are $80, $100, and $165 for the low- medium- and high- balance accounts, respectively. Calculate the ave
cost from Requirement 1). Now calculate the profit per account using the revenue per customer type and the unit c

4. After the analysis in Requirement 3, a vice president recommended eliminating the free checking feature for low
reluctance to do so, arguing that the low-balance customers more than made up for the loss through cross sales. H
the customers would switch banks if a checking fee were imposed. Explain how you could verify the president’s arg

Answer
1. Cost per Account
Cost per account = Total Cost
Number of checking accounts
$ 4,070,000
50,000
Cost per account = 81.40
2. Activity Rates
Opening and Closing Accounts = Opening and closing accounts cost
Number of accounts opened/closed
$ 2

Opening and Closing Accounts = 10.00

Issuing monthly statements = Issuing monthly statements cost

Number of statements issued
$ 3
6
Issuing monthly statements = 0.50

3. ABC
Assignmnet Low Medium
Number of accounts opened/closed 150,000.00 30,000
Number of statements issued 225,000 50,000
Processing transactions 1,800,000 200,000
Number of telephone minutes 200,000 120,000
Number of ATM minutes 945,000 140,000
TOTAL 3,320,000 540,000
Number of checking accounts 38,000 8,000
Cost per Account 87.37 67.50

Average Profit = $ 90 - cost per account

$ 90 - $ 81.40
Average Profit = $ 8.60

Direktur bank mengatakan akan menutupi kerugian biaya melalui penyilangan laba maka yang
pertama hitung terlebih dahulu penyilangan laba tersebut dari pelanggan bersaldo rendah.
Kemudian bandingkan hasil penyilangan laba dengan total kerugian rekening giro bersaldo rendah.
Jika hasil penyilangan laba lebih besar daripada kerugian rekening giro bersaldo rendah maka
argumen direktur bank dapat diterima.
stomer type. Customers are categorized according to the size of their account: low
ifferent customer categories and their associated annual costs are given below.

provided:
ance
High
2,000
50,000
500,000
400,000
50,000
4,000

intaining checking accounts by the total number of accounts. What is the average
ng accounts?

rage $90 per account; however, the interest revenues earned per account by
ectively. Calculate the average profit per account (average revenue less average
ustomer type and the unit cost per customer type calculated in Requirement 2.

e checking feature for low-balance customers. The bank president expressed

loss through cross sales. He presented a survey that showed that 50 percent of
d verify the president’s argument using activity-based costing.

Average fee per month = Cost per account

12
81.40
12
Average fee per month = 6.78
accounts cost Processing Transaction = Processing transactions cost
opened/closed Processing transactions
200,000 $ 2,050,000
20,000 20,500,000
Processing Transaction = 0.10
Customer inquiries = Customer inquiries cost
ements cost Number of telephone minutes
ents issued $ 400,000
300,000 2,000,000
600,000 Customer inquiries = 0.20
Providing ATM services = Providing ATM services cost
Number of ATM minutes
$ 1,120,000
1,600,000
Providing ATM services = 0.70

High ABC Profit

20,000 Low = $ 80.00
25,000 Low = $
50,000
80,000 Medium = $ 100.00
35,000 Medium = $
210,000
4,000 High = $ 165.00
52.50 High = $
- $ 87.37
-7.37

- $ 67.50
32.50

- $ 52.50
112.50