Notesale: Turn your study into money

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HULT International Business School
Managerial Accounting (ACC220)
Outline of the Required Book

Chapter 5 - Cost and cost management in a competitive environment
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Cost determination in the changed business environment
1
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Costing and pricing the traditional way
➔ Direct-labour intensive & direct-labour paced production> The speed of production was dictated by
direct labour
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Little was spent on pozer, heat and light, and
machinery (depreciation charges) and other areas of typical indirect cost (overheads) of modern
business
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1
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Costing and pricing in the new environment

➔ Capital intensive and machine paced production
➔ A high level of indirect cost relative to direct cost
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➔ Shorter product life cycles
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2
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➔ IC which cannot be linked to products in the same way are allocated or apportioned to product cost
centers and then charged to individual jobs using appropriate overhead recovery rates
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It is
not unusual for overhead recovery rates to be between 5 and 10 times more than the hourly wage
rate
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Even small change in the amount of direct labour
worked can have a huge effect on the total cost calculated for a job
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ABC = Activity based costing
➔ ABC aims to overcome the kind of problem in the methods directly tracing the cost of all activities
supporting the production processes
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➔ ABC takes into account:
- each of the various support activities
- cost to be assigned
- the ​cost driver​ = factors that cause a change in the costs of each support activity
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- [2] assigning the total cost associated with each support activity to the relevant cost pool
- [3] charging the units of output with the total cost within each pool using the relevant cost
driver
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4
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Costs indeed begin to accumulate at an earlier point and
continue to accumulate water production
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With the revenues generated over the life cycle being also tracked, the
profitability can be assessed
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- research and development on the P/S and also on the market it serves,
- design of the P/S and so the means of production,
- the setup of the necessary production facilities,
- advertising for marketing and promotion
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- traditional or ABC costing ​makes its contribution at this stage

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