Managerial: Accounting

7

ACTIVITY-BASED COSTING AND ACTIVITY-BASED MANAGEMENT

After studying this chapter, you should be able to meet the following learning objectives (LO).

1. Classify activities as unit-level, batch-level, product-level, customer-level, or organization-level. (Unit 7.1)
2. Calculate activity-based product costs. (Unit 7.2)
3. Explain the difference between traditional product costs and activity-based product costs. (Unit 7.2)
4. Distinguish between value-added and non-value-added activities. (Unit 7.3)
5. Explain how information about activities can be used to make decisions. (Unit 7.3)

The Pitch

It was early in 2012, and C&C Sports' managers were reeling from the recently released operating results for 2011. Selling more award jackets than budgeted should have increased C&C's operating income, but that hadn't happened. Instead, costs had skyrocketed (see Chapter 6). Direct material and direct labor costs were part of the problem, but other production costs had come in much higher than expected.

George Douglas, CEO, called a meeting of upper management to discuss the unexpected results. “We've never missed budgeted income by this much,” said Douglas. “I am more convinced than ever that we don't understand what it costs to make our products,” CFO Claire Elliot replied. “You're right,” Penny Townsley, ...