2023 Meet 5 Akuntansi Manajemen : Activity Based Costing

Summary

This video lecture provides an in-depth exploration of Activity-Based Costing (ABC), a method of allocating overhead costs to products based on the activities that drive those costs. Key concepts include the definition of ABC, its strengths such as more accurate cost allocation and better decision-making, and its weaknesses such as high implementation costs and complexity. A practical example is given, illustrating the ABC method applied to two products: earrings and bracelets. The lecture also explains the calculations involved in ABC, offering insights into how it can improve cost management and pricing strategies in manufacturing.

Takeaways

• 😀 Activity-Based Costing (ABC) is an accounting system that allocates overhead costs to products based on the activities that generate those costs.
• 😀 ABC helps companies identify and assign costs to products accurately, ensuring that only the actual costs related to the production process are allocated to products.
• 😀 William K. Carter defines ABC as a system where multiple overhead costs are allocated using factors related to volume or non-volume activities.
• 😀 Mulyadi defines ABC as a cost information system that provides detailed information about activities, enabling better management and control of activities.
• 😀 According to Wikipedia, ABC is a method of allocating costs to products based on actual consumption of activities within an organization.
• 😀 The importance of implementing ABC includes handling increasing overhead costs, accurately allocating those costs, and adapting to diverse customer demands and product types.
• 😀 A key disadvantage of ABC is that it is expensive and time-consuming to implement, and it may require significant changes to financial reporting practices.
• 😀 The benefits of ABC include improved decision-making, better pricing and purchase order determination, and enhanced product cost analysis and process optimization.
• 😀 In the example of PT Kemilau Cantik, ABC was applied to two products: Anting (earrings) and Gelang (bracelets), with detailed cost breakdowns for various activities like setup, engineering, and machine usage.
• 😀 The calculation of overhead costs per unit involves determining activity rates for each cost driver, then applying these rates to the actual activity levels for each product.
• 😀 By using ABC, companies can more accurately determine the cost per unit of production, helping with pricing and profitability analysis, as demonstrated in the PT Kemilau Cantik example.

Q & A

What is Activity-Based Costing (ABC)?

Activity-Based Costing (ABC) is an accounting system that identifies and allocates costs to activities based on their consumption by products, instead of traditional volume-based methods. It helps determine the true cost of products by associating costs with activities and then assigning those costs to products accordingly.

What is the significance of applying Activity-Based Costing?

Activity-Based Costing helps businesses manage and control overhead costs by accurately allocating costs to activities related to product production. It is significant because it improves pricing decisions, reduces errors in inventory calculations, and allows better decision-making based on actual activity levels.

What are the key benefits of implementing Activity-Based Costing?

The key benefits include better pricing decisions, improved cost analysis, ability to identify inefficiencies, and support for process reengineering to achieve better quality. It also helps in taking competitive business actions through more accurate cost assessments.

How does Activity-Based Costing differ from traditional costing methods?

Activity-Based Costing differs from traditional costing methods by allocating overhead costs based on activities that consume resources, rather than just allocating based on volume or direct labor hours. This allows for a more accurate and detailed cost allocation, which can reveal hidden inefficiencies.

What are the drawbacks of Activity-Based Costing?

The drawbacks of Activity-Based Costing include its complexity and high implementation costs. It also requires significant time to set up and may not align with traditional accounting principles. Additionally, the process of gathering and processing activity data can be time-consuming and expensive.

How does Activity-Based Costing impact managerial decisions?

Activity-Based Costing provides managers with a detailed understanding of cost drivers, allowing them to make informed decisions about pricing, process improvements, and cost control. It can also guide decisions related to product mix, resource allocation, and customer profitability.

What is the process for calculating the activity rates in Activity-Based Costing?

To calculate activity rates in Activity-Based Costing, divide the total budgeted cost for each activity by the total number of activity units. For example, if the budget for a particular activity is $200,000 and there are 50,000 units of that activity, the activity rate would be $4 per unit.

What is the significance of cost per unit in Activity-Based Costing?

Cost per unit is crucial in Activity-Based Costing as it provides a more accurate understanding of the true cost to produce one unit of a product. This helps in setting prices that reflect the actual production costs and can improve profitability and competitive positioning.

How is overhead cost allocated to products in Activity-Based Costing?

In Activity-Based Costing, overhead costs are allocated to products based on the actual activity consumption by each product. For example, if a product requires more machine time or setup activities, it will absorb a higher share of the overhead cost related to those activities.

What are the main steps in implementing Activity-Based Costing in a company?

The main steps to implement Activity-Based Costing include identifying the activities involved in production, assigning costs to each activity, calculating activity rates, and then allocating these costs to products based on their usage of the activities. This process requires data collection, analysis, and adjustments over time.