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Cost Accumulation System

This document discusses cost accumulation systems and budgeting. It explains that cost accumulation systems estimate resources consumed by cost objects using cause-and-effect allocations to distribute indirect costs. It also describes the differences between traditional and activity-based costing systems in how they allocate indirect costs in two stages, first to cost centers and then to cost objects. The document then outlines the budgeting process, noting that budgets involve long-term planning that is uncertain yet guides annual operations and coordinates organizational activities through communication of plans to managers in order to motivate performance and control activities. It concludes by listing the eight stages of the budget process.

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Olga Sîrbu
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39 views

Cost Accumulation System

This document discusses cost accumulation systems and budgeting. It explains that cost accumulation systems estimate resources consumed by cost objects using cause-and-effect allocations to distribute indirect costs. It also describes the differences between traditional and activity-based costing systems in how they allocate indirect costs in two stages, first to cost centers and then to cost objects. The document then outlines the budgeting process, noting that budgets involve long-term planning that is uncertain yet guides annual operations and coordinates organizational activities through communication of plans to managers in order to motivate performance and control activities. It concludes by listing the eight stages of the budget process.

Uploaded by

Olga Sîrbu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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CH.

12
Cost accumulation system- generating relevant cost information for decision-making
Many indirect costs are relevant for decision-making and a costing system is required that
provides an estimate of resources consumed by cost objects using cause-and-effect allocations
to allocate indirect costs.
Activity based and traditional costing systems
Differences: relate to the 2 stage allocation process.
First stage:
Traditional system: allocate indirect costs to cost centres
Activity based: allocate indirect cost to cost centres based on activities not on departments;
more activities than departments- greater number of cost centres
Second stage:
Traditional: a limited number of different types of second stage volume-based allocation bases;
Activity- many different types of volume-based and non-volume-based and cause-and-effect
ABC system
- Established for each activity cost pool;
- Assigned to cost object;
- Two-stage allocation overhead procedure
1. Identifying activities;
2. Assigning costs to activity cost centres;
3. Selecting appropriate cost drivers for assigning the cost of activities to cost objects
4. Assigning the cost of the activities to products
ABC activities:
- Unit-level (a unit of the product or service is produced; direct labour and energy costs);
- Batch-level(a batch is produced; setting up a machine or processing a purchase order);
- product-sustaining (to enable the production and sale of individual products; technical
support provided for individual products )
- Facility-sustaining(to support the facility’s general manufacturing process; general
administrative staff and property support costs).

CH.13
Budgeting- overall planning and control framework
- Long-term plans;
 Uncertain;
 General in nature;
 Imprecise;
 Subject to change.
Budgeting purposes:
1. Planning annual operations;
2. Coordinating the activities of the various parts of the organization and ensuring that the
parts are in harmony with each other;
3. Communicating the plans to the managers of the various responsibility centres;
4. Motivating managers to strive to achieve organizational goals;
5. Controlling activities;
6. Evaluating the performance of managers
Stages of budget process:
1. Communicating details of the budget policy and guidelines to those peoples
responsible for the preparation of the budgets;
2. Determining the factor that restricts output;
3. Preparation of the sales budget;
4. Initial preparation of the various budgets;
5. Negotiation of budgets with superiors;
6. Coordination and review of budgets
7. Final acceptance of budgets;
8. Ongoing review of budgtes.

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