Activity-based costing : making it work for small and mid-sized companies

Title:

Personal Author:

Hicks, Douglas T.

Edition:

2nd ed

Publication Information:

New York : John Wiley & Sons, 1999

ISBN:

9780471249597

Subject Term:

Activity-based costing

Small business -- Accounting

Available:*

Library	Item Barcode	Call Number	Material Type	Item Category 1	Status
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* A practical, cost-effective guide to ABC for small to medium companies.
* Identifies the key cost related issues in organizations and shows how to develop a cost-flow structure that reflects the organization's cost behavior.
* Feature an ongoing case study throughout the book documents the model-building process.
* Provides a spreadsheet model blueprint that details data flows.
* Shows how a cost model of an organization can be developed using basic spreadsheet software on a PC.

Author Notes

Douglas T. Hicks, CPA, CMC, is a Senior Managing Consultant at BKD, LLP, the nation's eighth largest accounting and consulting firm, and Team Leader of their Decision Costing Services practice. Before entering consulting in 1985, he spent fifteen years in public accounting at Ernst & Young, and in industry with Hayes-Albion Corporation and Kelsey-Hayes Company. Hicks is a member of the American Institute of CPAs, the Michigan Association of CPAs, the Institute of Management Accountants, and the Institute of Management Consultants. He is also the author of Activity-Based Costing for Small and Mid-Sized Businesses: An Implementation Guide, published by Wiley.

Reviews 1

Choice Review

Hicks has written a spirited, commonsense contribution to the accounting literature based on the major premise that activity-based costing (ABC) is a beautifully simple, adaptable process. He deftly presents the shortcomings of generally accepted accounting principles (GAAP) as a basis for costing products, with criticisms of depreciation accounting and the failure to recognize value-added expenses. The author illustrates the fallacy of arbitrary cut-offs with a baseball analogy. Not identified, however, is a major flaw in traditional cost accounting that is predicated on labor intensive manufacturing processes, which are now outdated. Furthermore, this reviewer disagrees with the contention that GAAP is balance sheet focused. Rooted in societal preoccupation with earnings, accounting principles concentrate on fair presentation of earnings, frequently to the detriment of useful balance sheets (e.g., LIFO, income tax accounting, and pension accounting). Balance sheets include unrealistically low inventories and large unidentifiable deferred tax and pension liabilities. Hicks provides a very useful model tool-box for activity-based costing, two real-life scenarios, and step-by-step instructions for developing a spreadsheet-based cost accumulation and distribution model. Overall, a superb, in-depth summary of this commonly misunderstood concept that small business owners will surely embrace. Undergraduate and graduate accounting and finance students as well as practitioners. J. F. Phillips; Southern Connecticut State University

Preface	p. xv
Chapter 1 Activity-Based Costing: The First Decade	p. 1
Pre-ABC Era	p. 1
Primary Purpose of Cost Information	p. 2
Dawn of the ABC Era	p. 3
ABC at Small and Mid-Sized Businesses	p. 4
Chapter 2 Strange Case of Ace Manufacturing	p. 7
Ace Manufacturing	p. 7
Changing to Multiple Overhead Rates	p. 9
Changing to Multiple Overhead Bases	p. 10
Segregating "Throughput"-Driven Costs	p. 12
Identifying Product Line Costs	p. 12
Summary	p. 14
Chapter 3 What Is Activity-Based Costing	p. 16
ABC at Small and Mid-Sized Businesses	p. 18
An Activity-Based Model	p. 21
Three Keys to Effective ABC	p. 21
Which Small and Mid-Sized Businesses Are Most at Risk?	p. 21
Is ABC Worth the Required Investment?	p. 26
Summary	p. 27
Chapter 4 Deadly Virus of Generally Accepted Accounting Principles: Determining True Economic Costs	p. 28
Accounting and Astronomy	p. 28
Accounting and Baseball	p. 30
Accounting Periods and Generally Accepted Accounting Principles	p. 30
Impact of Astronomy and Baseball on GAAP	p. 32
Retroactive/Prospective Balance Sheet Modifications	p. 32
Expenses That Are Investments	p. 34
Depreciation	p. 38
Nonannual Cost Cycles	p. 45
Expenses That Are Not Incurred	p. 46
Death Spiral	p. 47
Summary	p. 49
Chapter 5 Logic of Activity-Based Costing	p. 50
Designing the Activity-Based Cost Flow	p. 51
Throughput or Direct Costs	p. 51
Service and Operations Support Activities	p. 53
Throughput or Material Support Activities	p. 54
Market or Customer Support Activities	p. 56
Product or Product-Line Support Activities	p. 59
Value-Adding or Direct Activities	p. 61
Event or Transaction Activities	p. 62
General and Administrative Activities	p. 64
Cost Flow-Down Step 1 Assigning Costs to Activities	p. 65
Cost Flow-Down Step 2 Assigning Costs Among Activities	p. 67
"Cafeteria Line" of Activity Center Costs	p. 70
Cost Flow-Down Step 3 Assigning Activity Costs to Jobs/Products	p. 71
Completion of Cost Flow-Down Step 3	p. 74
Activity-Based Cost Accumulation	p. 76
Summary	p. 77
Chapter 6 Case Study: Acme Distributors	p. 78
Developing an ABC Structure--Service and Support Activities	p. 79
Developing an ABC Structure--Operating Activities	p. 81
Developing an ABC Structure--Assigning Costs to Cost Objectives	p. 86
Determining Customer Profitability	p. 92
The Structure vs. the Numbers	p. 98
Summary	p. 109
Chapter 7 Decision Costing: The Real Reason for Activity-Based Costs	p. 110
Pricing Decisions	p. 111
Core Business Pricing	p. 112
Special Order Pricing	p. 119
Strategic/Product-Line Pricing	p. 121
Long-Term Contracts	p. 124
Capital Expenditure Decisions	p. 128
Outsourcing (Make/Buy) Decisions	p. 133
Other Decision Situations	p. 134
Summary	p. 135
Chapter 8 Activity-Based Costing Model Toolbox	p. 136
Operating Labor Demand/Supply Equation	p. 136
Screens	p. 142
The ABC Perspective	p. 148
Weighted Events and Transactions	p. 151
Consumption Units	p. 159
Labor-Based Cost Accumulation and Distribution	p. 164
Piece-Rate Cost Accumulation and Distribution	p. 167
Machine Hour/Cycle Time Distribution	p. 168
Line/Cell Time Cost Distribution	p. 170
Production Manpower Pool	p. 175
Internal Costs	p. 177
Summary	p. 179
Chapter 9 Developing Cost Flow-Down Structures: Case Studies	p. 180
Sunshine Flowers, Inc.	p. 181
Discussion	p. 184
Road Shows, Inc.	p. 189
Discussion	p. 192
Summary	p. 200
Chapter 10 Building a Cost Accumulation and Distribution Model	p. 201
Cost Model Structure--General	p. 203
Cost Model Structure--Bottom Up	p. 204
Cost Model Structure--Top Down	p. 214
Summary	p. 219
Chapter 11 Small-Time Manufacturing: Developing the Conceptual Model	p. 220
Venturing into Activity-Based Costing	p. 221
Throughput or Direct Costs	p. 222
Service and Operations Support Activities	p. 222
Throughput or Material Support Activities	p. 223
Market or Customer Support Activities and Product or Product-Line Support Activities	p. 223
Value-Adding or Direct Activities	p. 223
Event or Transaction Activities	p. 225
General & Administrative Activities	p. 225
Other Considerations	p. 225
Cost Flow-Down Step 1 Assigning Costs to Activities	p. 226
Cost Flow-Down Step 2 Assigning Costs Among Activities	p. 228
Cost Flow-Down Step 3 Assigning Activity Costs to Jobs/Products	p. 231
Summary	p. 231
Chapter 12 Small-Time Manufacturing: Building the Cost Accumulation and Distribution Model, Part 1--Cost Accumulation	p. 232
Operating Information and Resource Requirements	p. 233
Schedule #01 Contract Activity Summary	p. 234
Schedule #02 Operating Information and Resource Requirements	p. 234
Resource Conversion	p. 237
Schedule #03 Resource Conversion	p. 237
Screens	p. 237
Schedule #04 Screen	p. 239
Operating Manpower Demand	p. 240
Schedule #05 Operating Manpower/Demand	p. 240
Automatically Variable Costs	p. 243
Schedule #06 Automatically Variable Costs	p. 243
Operating Manpower Supply	p. 243
Schedule #07 Operating Manpower/Hours Available	p. 245
Schedule #08 Operating Manpower/Supply	p. 247
Schedule #09 Operating Manpower/Cost	p. 249
Step Variable Costs--Support Staff	p. 251
Schedule #10 Support Staff	p. 251
Fringe Benefits and Other Headcount-Driven Costs	p. 253
Schedule #11 Fringe Benefits	p. 253
Schedule #12 Other Headcount-Driven Costs	p. 255
Fixed Costs and Budgeted Costs	p. 255
Schedule #13 Fixed and Budgeted Costs	p. 255
Total Cost Accumulation	p. 258
Schedule #14 Cost Accumulation	p. 259
Summary	p. 263
Chapter 13 Small-Time Manufacturing: Building the Cost Accumulation and Distribution Model, Part 2--Cost Distribution	p. 264
Other Data and Cost Distribution	p. 265
Schedule #15 Square Footage	p. 265
Schedule #16 Automatic Distributions	p. 267
Schedule #17 Activity Analysis Distributions	p. 267
Schedule #18 Cost Distribution	p. 270
Schedule #19 Cost/Rate Reconciliation	p. 274
Model Directory	p. 276
Model Completion	p. 276
Summary	p. 278
Chapter 14 Small-Time Manufacturing: Product Costing	p. 279
Contract Costing Comparisons	p. 281
Contract Profitability Comparisons	p. 292
Contract Contribution Analysis: Eliminate Contract #04	p. 295
Contract Contribution Analysis: Add Another Contract #10	p. 300
Summary	p. 303
Chapter 15 Small-Time Manufacturing: Discrete Event Simulation or "What If?" Analysis	p. 305
Scenario 1 p. 306
Scenario 2 p. 312
Scenario 3 p. 314
Scenario 4 p. 316
Summary	p. 319
Chapter 16 Small-Time Manufacturing: Multiyear Costing and Pricing	p. 320
Small-Time Manufacturing's Opportunity	p. 322
Establishing "Then Year" Costing Rates	p. 322
Multiyear Costing/Pricing Template	p. 324
Production Requirements	p. 324
Direct and Throughput Costs	p. 332
Direct/Value-Adding Costs	p. 333
General and Administrative Activities	p. 337
Multiyear Program Pricing	p. 337
Summary	p. 340
Chapter 17 Impediments to Adopting Activity-Based Costing at the Small and Mid-Sized Organization	p. 342
Impediments to Attempting ABC	p. 343
Perceived Lack of Resources	p. 343
Entrepreneurial Ego	p. 344
Lack of Decision Costing Skills	p. 345
Desire to be a Settler, Not a Pioneer	p. 345
Impediments to Succeeding with ABC	p. 346
Desire to Be Taught, Not to Learn	p. 346
Lack of Decision Costing Skills	p. 347
Employee Turnover	p. 347
Summary	p. 348
Chapter 18 Making Activity-Based Costing Work at the Small and Mid-Sized Business	p. 349
Index	p. 355

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