Activity Based Costing part 2 – ACCA Performance Management (PM)
49 Comments
B
Barry·
Ah I see now. Cost drivers are the most suitable quantifier used to measure the level of activity.
J
John MoffatTutor·
Correct :-)
B
Barry·
Are all these breakdowns based on activities what are referred to as cost drivers?
Or is a cost driver only one of the above at any one time?
Hope this makes sense
G
Gayatri·
Is this notes and vidios helpful still 2025aug
E
Elias·
Im having lectures right now and watching OpenTuition at the same time. It is really really helpful. Without this guy I wouldn't have passed my exams. 100% worth it trusttttt
J
John MoffatTutor·
Thank you for your comment :-)
J
John·
Hi John, why did we use the number of units in the last part instead of the number of labour hours?
J
John MoffatTutor·
If you are meaning the very last part then it is because we need the cost per unit.
L
Louise·
Thank you
A
An·
I've watched many lectures from many Professors, but honestly yours are the most straightforward. I love it. Thank you so much for providing us this website.
J
John MoffatTutor·
Thank you for your comment :-)
B
Bebeto·
Clear as a crystal
J
John MoffatTutor·
Great :-)
O
Omar·
Is the notes and lectures still applicable for december 2023 sitting?
J
John MoffatTutor·
Yes they are :-)
A
Ahmed·
are the notes and lecture applicable for June 2024 as well?
J
John MoffatTutor·
Yes - our notes and lectures are always kept up to date for all the exams.
J
John MoffatTutor·
Thank you for your comment, and yes - all of our lectures are relevant for the December 2022 exam.
V
Venarsious·
Thanks, very clear.
J
John MoffatTutor·
Thank you for your comment :-)
S
shakir7385·
Dear John
While proportionating machining cost to each product, why can't we simply divide the total machine cost by total number of production units (A+B+C) in combined and then outcome to be multiplied by the total production of A then total production of B and then total production of C. Since the time required to produce any of the category unit is same i.e. 2 hours per unit. What is wrong in this logic, please guide
J
John MoffatTutor·
Given that the time for each of them is the same, then no problem - this will obviously give the same answer and nobody is saying that there is anything wrong :-)
However equally obviously, if the time for units of each product was different, then this would not work.
M
mo55·
Hello John,
Thanks for the Lectures, your efforts in making us understand is deeply appreciated.
Please, Why is it wrong to calculate Machining hours like others, I.e 55,000/(2+2+2) what is so special about Labour hours?
The calculation of this labour hours gets me confused in all topics it appears in.
Thanks.
J
John MoffatTutor·
To get the cost per machine hours we need to know the total machine hours worked.
2 hours is the hours per unit and is not the total hours worked.
M
mo55·
Thank you John, I really appreciate you.
J
John MoffatTutor·
You are welcome :-)
J
justinidicula·
Hi Sir i have a doubt in the above mentioned question
in the question the total overhead is 190000 and the same we divide it into A,B,C 78040,94690 and 17268 when we take the total of a+b+c total amount will come 189998 there is a difference of 2 is it okey?
J
John MoffatTutor·
Yes, it is OK. As I do say in the lecture small rounding differences are irrelevant and the cost per unit (to the nearest cent) will be exactly the same anyway :-)
J
justinidicula·
Thank you so much Sir
J
John MoffatTutor·
You are welcome :-)
P
Phuong Lan·
Dear sir,
I have a question
Asume that number of products equal number of sales
We have
Total Profit is 20000*1.1+25000*1.21+2000*(-3.63)=44990 (under ABC costing)
Total Profit is 20000*(-0.68)+25000*2.16+2000*2.16=44720 (under absorption transition costing)
Why have this different in case total revenue and total cost are the same
Thanks you
Phuong Lan
J
johncrotty·
When you calculated the Machining overhead you made a mistake;
you said B and C had 25000x2 and 2000x2 however these should have been x1
correct working should be:
A) 20000x2 =40000
B) 25000x1 =25000
C) 2000x1 = 2000
Total 67000 (the same figure used in question (a))
55000/67000= 0.82
so machining should be:
A $32840 B $20525 C 1642
J
John MoffatTutor·
No - there is no mistake.
If you look at the question in our free lecture notes you will see that there are 2 machine hours per unit for each of the three products.
J
johncrotty·
Thanks re-looked at it and I looked at the labor hours and not machine hours.
P
Pepita·
Thank you for the lecture, it was very useful. In your introductory lecture you mentioned Section C questions wont be asked from costing topics. I assumed the first 3 chapters are linked to costing. Please confirm if I am right to assume that we wont have any section C questions from the 1st 3 chapters?
J
John MoffatTutor·
The examiner states in the syllabus (which is available on the ACCA website) that the two 20 mark questions in Section C of the exam will come from decision making techniques, budgeting and control and/or performance measurement and control areas of the syllabus. These questions may also include requirements related to the information systems area of the syllabus.
S
shovbahadur·
This lecture is very helpful for me,thank you so much sir.
J
John MoffatTutor·
Thank you for your comment :-)
L
Louise·
If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks?
For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?
Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.
ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?
Perhaps i missed something…
J
John MoffatTutor·
1. By all means miss out the steps (unless it is specifically asked for in the question). Just make sure if it is in Section C that you still show workings in case you make an arithmetical mistake.
2. Assuming they sell all they they produce, then the total profit will stay the same. You can't just add together the unit profits. The total profit is calculated by multiplying the units by the profit per unit for each product separately, and then adding the totals together.
T
tarikahs93·
How do you calculate overhead cost when giving percentages for each products.
Used to calculating rate per each cost drivers, however, in a question, the cost drivers for Engineering Overhead cost of $836,000.00 (For example) wasn't given rather the question provided 40%, 35% and 25% for products 1, 2 and 3 respectively.
How do you solve this?
Please reply asap
J
John MoffatTutor·
In future please ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture.
Without having seen the whole question, on what you have typed you would take 40% x $836,000 for product 1, and divide by the number of units produced of product 1 to get the cost per unit for that product. Same logic for the other two products.
L
Louise·
Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it's just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.
ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?
Perhaps i missed something...
L
Louise·
If we skipped a step and went straight to apportioning the cost (for ABC Costing) , would we lose marks?
For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?
D
divinekay·
Still find it difficult to get how you calculated labour
J
John MoffatTutor·
The labour per unit is part of the costing, but is not activity based (ABC only applies to the overheads).
The question gives the labour hours per unit, and also gives the rate per hour - so you must multiply the two together!
(I assume that you do have the free lectures notes containing the example in front of you?)
A
alie2018·
Thank you John. I think ABC is much more fairer and appropriate than traditional AC when dealing with overheads based on the activities that give rise to the cost. As a result, this should lead accurate cost per unit and hence better decision making. However, is it in all cases one can expect the results of ABC to be different from AC?
J
John MoffatTutor·
Yes :-)
F
Fiori·
Hello John,
I would like to appreciate for all the brief and well explanations of the topics u give us.
My question is " is it okay to use this lecture for December 2022 PM exam?"
Or is a cost driver only one of the above at any one time?
Hope this makes sense
While proportionating machining cost to each product, why can't we simply divide the total machine cost by total number of production units (A+B+C) in combined and then outcome to be multiplied by the total production of A then total production of B and then total production of C. Since the time required to produce any of the category unit is same i.e. 2 hours per unit. What is wrong in this logic, please guide
However equally obviously, if the time for units of each product was different, then this would not work.
Thanks for the Lectures, your efforts in making us understand is deeply appreciated.
Please, Why is it wrong to calculate Machining hours like others, I.e 55,000/(2+2+2) what is so special about Labour hours?
The calculation of this labour hours gets me confused in all topics it appears in.
Thanks.
2 hours is the hours per unit and is not the total hours worked.
in the question the total overhead is 190000 and the same we divide it into A,B,C 78040,94690 and 17268 when we take the total of a+b+c total amount will come 189998 there is a difference of 2 is it okey?
I have a question
Asume that number of products equal number of sales
We have
Total Profit is 20000*1.1+25000*1.21+2000*(-3.63)=44990 (under ABC costing)
Total Profit is 20000*(-0.68)+25000*2.16+2000*2.16=44720 (under absorption transition costing)
Why have this different in case total revenue and total cost are the same
Thanks you
Phuong Lan
you said B and C had 25000x2 and 2000x2 however these should have been x1
correct working should be:
A) 20000x2 =40000
B) 25000x1 =25000
C) 2000x1 = 2000
Total 67000 (the same figure used in question (a))
55000/67000= 0.82
so machining should be:
A $32840 B $20525 C 1642
If you look at the question in our free lecture notes you will see that there are 2 machine hours per unit for each of the three products.
For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?
Another question, using the a and b, the sale price (therefor revenue) and the total costs remain the same. it’s just two different ways of allocating the costs, right? so shouldnt the end result be the same? shouldnt the profit on all items (therefor adding the P/L for each item unit) be the same for both A and B. i dont fully understand why in a we are making a profit of 1.64 per unit (all three added) and in b we are making a loss of 1.42.
ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?
Perhaps i missed something…
2. Assuming they sell all they they produce, then the total profit will stay the same. You can't just add together the unit profits. The total profit is calculated by multiplying the units by the profit per unit for each product separately, and then adding the totals together.
Used to calculating rate per each cost drivers, however, in a question, the cost drivers for Engineering Overhead cost of $836,000.00 (For example) wasn't given rather the question provided 40%, 35% and 25% for products 1, 2 and 3 respectively.
How do you solve this?
Please reply asap
Without having seen the whole question, on what you have typed you would take 40% x $836,000 for product 1, and divide by the number of units produced of product 1 to get the cost per unit for that product. Same logic for the other two products.
ultimately the income and expense was the same, it was just allocation of expenses that differed. I really dont know why the profit or loss amount in total changed?
Perhaps i missed something...
For example, i would not have gone to get each overhead cost total per Set up, i would have just said, 10 divided by 25 is 40% and then multiplied the 90 000 by 40%, and gone on like that. its gets you to the same end result. will we be penalized if we do it this way. does each step count for marks or is it just the final answer that really matters?
The question gives the labour hours per unit, and also gives the rate per hour - so you must multiply the two together!
(I assume that you do have the free lectures notes containing the example in front of you?)
I would like to appreciate for all the brief and well explanations of the topics u give us.
My question is " is it okay to use this lecture for December 2022 PM exam?"
Thanks.