MODUL PERKULIAHAN

Akuntansi
Manajemen
Activity Based Costing

Fakultas Program Studi Tatap Muka Kode MK Disusun Oleh

07
Economic & Business Accountancy 84033 Alfiandri, MAcc

Abstract Kompetensi
Diisi dengan abstract 1. Understand activity based costing
and differ with traditional costing
system
2.
Pembahasan
1. Introduction

Module seven introduces activity based costing which is many manufacture

companies have implemented. Activity-based costing (ABC) is a costing method that
is designed to provide managers with cost information for strategic and other decisions
that potentially affect capacity and therefore “fixed” as well as variable costs (Garrison &
Noreen 2006).
Activity based costing basically uses as supplement to, rather than as replacement
for, company usual costing system. Most organizations that use activity-based costing
have two costing systems—the official costing system that is used for preparing external
financial reports and the activity-based costing system that is used for internal decision
making and for managing activities.

2. Activity Based costing overview

Unlike absorption costing which all costs are recognized as product cost, calculate
unit product costs in order to evaluate the inventories and determine cost of goods sold,
activity based costing calculate product costs in order to manage overhead and making
decision. Specific different between activity based costing and traditional costing system
i.e., absorption costing as follow

a. Manufacturing cost as well as non-manufacturing cost maybe assigned for

product costs, but only on a cause and effect basis.
b. Some manufacturing cost may be exclude from product costs
c. Numerous overhead cost pools are used, some of them are allocated to the
product and the others of the cost use its own unique measure of activity.

2.1. Non-Manufacturing Cost and Activity Based Costing

Traditional cost accounting stated that only manufacturing costs are assigned as
product cost i.e., direct material, direct labor and manufacturing overhead. Selling
and administrative expenses are treated as periodic cost. However, some of the

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 manufacturing overhead costs are part of selling and administrative expenses such
as, commission paid to sales person, shipping cost and warranty repair cost. in this
topic (Activity based costing) we use of term “Overhead” refers to non-
manufacturing cost and indirect manufacturing cost.

Activity based costing on the other hand, assigns all “overhead” cost i.e., non-
manufacturing and manufacturing cost that they have reasonably to have caused. It
prefers to determine the entire cost of product rather than its manufacturing cost.

2.2. Manufacturing cost and Activity Based Costing

In traditional cost accounting, all manufacturing costs are product costs even though
that some of that manufacturing cost are not caused by products such as,
manufacturing overhead i.e., security guards wages and the plant controller salary
are name of few which assign as product costs in traditional cost accounting i.e.,
absorption costing even though that costs are not directly attach in making the
product during the period.

Activity based costing on the other hand, do not directly or arbitrarily assign
as product costs instead treat as periodic expenses. That is named “Organization-
sustaining cost”.

Furthermore, traditional absorption costing system, the costs of unused, or idle,

capacity are assigned to products. If the budgeted level of activity declines, the
overhead rate and unit product costs increase as the increasing costs of idle capacity
are spread over a smaller base.

Activity based costing on the other hand, products are only charged for the
costs of the capacity they use—not for the costs of capacity they don’t use. This
provides more stable unit product costs and is consistent with the goal of assigning to
products only the costs of the resources that they use.

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 2.3. Cost Pools, Allocation bases and Activity Based Costing

When cost system was developed in the 1800s or during 20th century was just simple
and satisfactory. The companies often established a single overhead cost pool for an
entire facility or department. Direct labor for instance was allocated as overhead cost
while “overhead cost” was allocated in the manufacturing overhead costs.

When the time changes, the production process become sophisticated due to
variety of product that produced and therefore that system is not adequate to
implement in the current practicing. Many tasks that used to be done by hand (labor)
are now done with largely automated equipment (a component of overhead)
moreover, as a percentage of total cost, direct labor is declining and overhead is
increasing.

Managing and sustaining the product diversity required investing in many more
overhead resources, such as production schedulers and product design engineers
that had no obvious connection to direct labor-hours or machine-hours. In this new
environment, continuing to rely exclusively on a limited number of overhead cost
pools and traditional allocation bases posed the risk that reported unit product costs
would be distorted and, therefore, misleading when used for decision-making
complex cost systems feasible, provides an alternative to the traditional plant wide
and departmental approaches to defining cost pools and selecting allocation
purposes. Activity-based costing, thanks to advances in technology that make more
bases. The activity-based approach has appeal in today’s business environment
because it uses more cost pools and unique measures of activity to better
understand the costs of managing and sustaining product diversity.

Garrison & Noreen (2006) states that activity-based costing, an activity is any event
that causes the consumption of overhead resources. An activity cost pool is a
“bucket” in which costs are accumulated that relate to a single activity measure in the
ABC system. An activity measure is an allocation base in an activity-based costing
system. The term cost driver is also used to refer to an activity measure because the
activity measure should “drive” the cost being allocated. The two most common types
of activity measures are transaction drivers and duration drivers. Transaction
drivers are simple counts of the number of times an activity occurs, such as the
number of bills sent out to customers. Duration drivers measure the amount of time
required to perform an activity, such as the time spent preparing individual bills for

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 customers. In general, duration drivers are more accurate measures of resource
consumption than transaction drivers, but they take more effort to record. For that
reason, transaction drivers are often used in practice

Traditional cost accounting system rely on the allocation bases that driven by the volume of
production. Activity based costing on the other hand, defines 5 levels of activities namely,
unit level, batch level, product level, customer level and organization-sustaining.

1. Unit levels of activities are performed each time a unit is produced. The costs of unit
level activities should be proportional to the number of units produced. For example,
providing power to run processing equipment would be a unit-level activity because
power tends to be consumed in proportion to the number of units produced.

2. Batch-level activities are performed each time a batch is handled or processed,

regardless of how many units are in the batch. For example, tasks such as placing
purchase orders, setting up equipment, and arranging for shipments to customers are
batch-level activities. They are incurred once for each batch (or customer order). Costs
at the batch level depend on the number of batches processed rather than on the
number of units produced, the number of units sold, or other measures of volume. For
example, the cost of setting up a machine for batch processing is the same regardless of
whether the batch contains one or thousands of items

3. Product-level activities relate to specific products and typically must be carried out
regardless of how many batches are run or units of product are produced or sold. For
example, activities such as designing a product, advertising a product, and maintaining a
product manager and staff are all product-level activities.

4. Customer-level activities relate to specific customers and include activities such as

sales calls, catalog mailings, and general technical support that are not tied to any
specific product

5. Organization-sustaining activities are carried out regardless of which customers are

served, which products are produced, how many batches are run, or how many units are
made. This category includes activities such as heating the factory, cleaning executive

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 offices, providing a computer network, arranging for loans, preparing annual reports to
shareholders, and so on

As the conclusion, there are three essential characteristics of a successful activity-based

costing implementation

1. Top managers must strongly support the ABC implementation because their leadership
is instrumental in properly motivating all employees to embrace the need to change

2. Top managers should ensure that ABC data is linked to how people are evaluated and
rewarded. If employees continue to be evaluated and rewarded using traditional (non-
ABC) cost data, they will quickly get the message that ABC is not important and they will
abandon it.

3. Cross-functional team should be created to design and implement the ABC system. The
team should include representatives from each area that will use ABC data, such as the
marketing, production, engineering, and accounting departments. These cross-functional
employees possess intimate knowledge of many parts of an organization’s operations
that is necessary for designing an effective ABC system. Furthermore, tapping the
knowledge of cross-functional managers lessens their resistance to ABC because they
feel included in the implementation process

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Daftar Pustaka
Garrison, R.H. 2006. Managerial Accounting. Edisi 11. Penerbit Salemba Empat. Jakarta

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