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– ## ManagementApplicationsofAccountingACC5301UnitIVAssignment.docx
– ## UnitIV_ResearchReport_Template.docx
– ## UnitIVStudyGuide.pdf
**## ManagementApplicationsofAccountingACC5301UnitIVAssignment.docx**
2
Management Applications of Accounting ACC 5301 Unit IV Assignment
This assignment measures your mastery of ULOs 1.1, 1.2, and 5.1.
**Assignment Objective**: For this assignment, you will research and compare international and U.S. accounting standards. This will enable you to see how the different reporting methods affect business and how product costs are affected by international business.
In the assignment you will do the following:
1. Compare and contrast basic U.S. and international financial accounting standards.
2. Explain how key international factors affect business reporting.
3. Identify key compliance and regulatory requirements.
**Length**: Using the
Unit IV Research Report Template, prepare a three-to-four-page written report covering the items listed below (page length does not include the title and reference pages).
**References**: At least three peer-reviewed sources are required. Resources used are required to be scholarly/academic in nature and found in the CSU Library. APA Style is required for citations and references.
**Details**: First, start the report with an introduction section, per the assignment template provided.
Part 1: Select financial statements for two related (e.g., computer manufactures, pharmaceutical companies, cell phone companies, etc.) businesses; one that uses U.S. accounting reporting and the other that uses international accounting reporting. Identify the following items:
1. Provide the name, location, and accounting standards used for each business.
2. Compare and contrast three major differences you see in the way the financial data is presented on the financial statements.
3. Identify which set of financial statements you think is the easiest to understand and provides you with most accurate cost data as a manager (Do not forget to look at the notes to the financial statements).
Part 2: Analyze and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
Part 3: Discuss three compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, or strict regulations on the wages paid to workers?
End this report with the key observations and present any future recommendations.
**Submission**: Save the submission as a Word document and upload the document to Blackboard.
**## UnitIV_ResearchReport_Template.docx**
1
5
**Title of the Paper Goes Here**
Student Name
Institution
ACC 5301 Management Applications of Accounting
Instructor
Date
**Abstract**
The abstract
is an overview of the paper, written after completion. Other researchers use the abstract to determine if your work will be useful to them. The abstract should include the background, hypothesis or research question, methodology for data collection and analysis, the findings of your research, and conclusions. It should be between 100–150 words. This is done when the paper is complete.
**Title of Paper**
Remember this part of the paper is double spaced in APA format.
The
_Introduction_ should lead readers into the topic and its importance. Introductions typically include the overall topic of the paper, the specific focus of the paper within the larger topic, the main points in the paper, the kind of paper (study, argument, critique, discussion), and the purpose.
_Writing tip:_ The length of the introduction should be in proportion to the length of the paper. Also ask yourself, “With my purpose and my audience, how do I engage my readers best?” In the introduction, you set the tone of the piece, establish your voice, and demonstrate your writing style; be authentic to your purpose and your audience.
**Part 1 Financial Statement Comparison**
_Identify_ the name, location, and accounting standards used for each of the two related businesses you selected
**.**
_Compare and contrast_ three major differences you see in the way the financial data is presented on the financial statements
Identify which set of financial statements you think are the easiest to understand and that provide you with the most accurate cost data as a manager. (Do not forget to look at the notes to the financial statements also.)
**Part 2 International Factors**
_Analyze_ and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
**Part 3 Compliance/Regulatory Issues**
_Discuss_ any compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, strict regulations on the wages paid to workers, etc.
**Conclusions and Recommendations**
_The conclusion_ section
should summarize for the readers the topics of importance that led to your final conclusions/analysis regarding this case. Include some specific areas of focus from your analysis to reinforce your conclusion.
**References**
Include complete references in proper APA format for all of the citations
_listed_ in your paper. Be sure to use the library for the required number of sources. Additional sources can be used but should be scholarly. Present your references in alphabetical order.
**## UnitIVStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit IV
Upon completion of this unit, students should be able to:
1. Compare and contrast U.S. and international accounting standards.
1.1 Identify key U.S. and international accounting standards.
1.2 Explain how key international factors affect business reporting.
5. Discuss compliance requirements of accounting information.
5.1 Identify key compliance and regulatory requirements.
Required Unit Resources
Chapter 6: Cost Allocation and Activity-Based Costing, pp. 6-1 – 6-25
In order to access the following resources, click the links below.
International Financial Reporting Standards. (n.d.). IFRS: Financial reporting for the world economy [Video].
https://www.ifrs.org/about-us/
Transcript for IFRS: Financial Reporting for the World Economy Video
Note: You must scroll through the available videos on the Financial Accounting Standards Board Video &
Podcasts page to access the following video:
Financial Accounting Foundation (Producer). (n.d.). The importance of GAAP [Video].
https://www.youtube.com/watch?v=bjwi4Zp2IiE
Transcript for The Importance of GAAP Video
Unit Lesson
Introduction
Welcome to Unit IV. We will be discussing two very different topics in this unit. We will start by discussing the
process of cost allocation. The main advantages of allocating these overhead costs is to more accurately
calculate the total cost of an organization's product and/or service. The second topic will introduce you to
international accounting standards and how these standards compare to U.S. accounting standards. Included
in this topic will be some key compliance and regulatory requirements needed for financial reporting.
Cost Allocation
We are going to start off with the basic concept of how costs are allocated, then we will go into a more
specific process of cost allocation known as activity-based-costing.
UNIT IV STUDY GUIDE
Cost Allocation and
International Accounting
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Basic Cost Allocation
The first two items we will discuss are cost
objectives and cost pools. Cost objectives are used
to determine how products or services costs are
allocated within the company. Going back to our
previous example of a computer manufacturing
company, the cost objectives would be the types of
computers the company produces. For this
example, we will say the company makes desktop
and laptop computers.
Cost pools are the overhead costs to be allocated.
For example, at our computer manufacturing
company, some of the cost pools would include the
cost of depreciation for the factory equipment and
factory building, management's salaries, and the
cost of factory utilities. The relationship between
cost objectives and cost pools can be shown in the
diagram here:
Now, we will move to defining an allocation base. Allocation base defines how the costs will be allocated
between the products and/or services produced. In our example we will allocate these overhead costs (cost
pools) based on the number of products (cost objectives) produced. So, if we make 100 computers per day in
total and 60 of those computers are desktops and 40 of those computers are laptops, we would allocate the
total overhead costs on a 60/40 split based on the number of each type of computer manufactured.
Activity-Based-Costing (ABC)
In ABC costing, we are still allocating the costs, but we will be allocating costs on a more specific basis. For
instance, using our computer manufacturing example again, instead of allocating all of the overhead costs in
the cost pools simply 60/40 based on the number of computers produced, we are going to break down these
overhead costs using cost drivers to more accurately allocate costs. Cost drivers are used to identify the
usage of each overhead item for each product. For example, instead of just grouping the cost of depreciation
for the equipment and factory into one large category, we are going to break down this amount by specific
usage for each machine and the factory separately. Therefore, we list the cost of depreciation for Equipment
A, cost of depreciation for Equipment B, and the cost of depreciation for the factory separately. We are still
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
going to base our allocation or driver on number of machine hours used by each type of product. The reason
here is that different products may use the different types of equipment a different number of hours.
Now let's see how all of this compares as we talk about the actual cost to make a desktop or laptop computer.
In our example, we will assume the cost of depreciation for the equipment and factory is $10,000 in total.
Using traditional costing, we split that $10,000 60/40 so desktop computers would be allocated $6,000 of
these costs and laptop computers $4,000 of these costs.
Just based on these numbers (of course there are additional costs), we could say, as managers, if we sell the
desktop computers for more than $6,000 and the laptop computers for more than $4,000, we would make a
profit. We then go ahead and set the selling price for desktops at $6,500 and the laptops at $4,500 each to
make a profit.
Now, let's look at using activity-based-costing for this same company. The total cost of depreciation for
equipment and the factory are the same at $10,000. The difference is in how we split up that total cost by
activity usage by product rather than just the number of units produced. In this example, the desktops and
laptops are produced using a different number of machine hours on different equipment; therefore, we are
allocating costs based on a more accurate cost driver, such as machine usage. As you can see, the total cost
of deprecation is exactly the same, but the cost allocated to each type of product is different. Therefore, in our
prior example, if we now sold the laptops for $4,500, we would be losing money on each sale because it costs
us $4,775. In addition, if we are pricing our desktops at $6,500, then this number may be too high for the
market since the cost is actually lower. If the price is too high for the market, the computers may not sell at all.
By more accurately determining the cost for the products and/or services of a company, the more accurate
selling price can be calculated.
ACC 5301, Management Applications of Accounting 4
UNIT x STUDY GUIDE
Title
As we have just seen in this example, it is important to allocate costs properly to each product and/or service
within an organization. The next section will look more closely at how these cost drivers are determined for
various levels of activities within an organization. There are four levels of activity we will be discussing: unit,
batch, product, and facility levels.
Unit Level
Unit level activities directly relate to the product or unit that that is being produced. An example of this for our
computer manufacturing company, would be the costs of the workers who distribute the raw materials (plastic,
wires, etc.) needed to make laptop computers to the factory floor so factory workers can assemble the laptop
computers.
Batch Level
Batch level activities would relate to the factory as a whole and not be specific to a particular product, as in
our unit level example—which only applied to laptop computers. An example of a batch level activity would be
the cost of labor for the factory worker that sets up Equipment A and B within the factory. In other words,
these two machines are used to make both laptop and desktop computers. The worker sets up the machines
that are used for both products.
Product Level
Product level relates to costs that benefit the company as a whole—not just one particular product, as with the
case of unit level. These costs would not include direct labor, as with the case of batch level. An example of
product level costs would be the salary of the engineer that designs the computers.
Facility Level
Facility level relates to the overall operation of the facility as a whole, not a particular product. An example of
this would be the cost of the salaries for the facility managers.
Below is a chart that summarizes the different level of activities, the associated costs, and the driver that may
be used for each level (Jiambalvo, 2020).
ACC 5301, Management Applications of Accounting 5
UNIT x STUDY GUIDE
Title
In addition to obtaining more accurate cost data by applying activities levels and detailed cost drivers, we
can also assign responsibility more fairly for the costs that we incur making the products and/or providing
the services of the organization. For example, the laptop division supervisor in the warehouse would have
the responsibility for unit costs associated with just the laptops, such as the cost of moving the raw materials
for laptops to the factory floor. Whereas, this same supervisor would not have control over product costs
such as the hiring of engineers to design new products. That responsibility would fall to the product
development manager.
Let's take a look at how the management levels within an organization relate to the activities levels for product
costing. As you can see, the higher the level of management, the more responsibility they have for costs
within the organization as a whole.
ACC 5301, Management Applications of Accounting 6
UNIT x STUDY GUIDE
Title
Benefits and Challenges of ABC
The main benefit of ABC is that it provides more accurate cost allocation data and reporting. The more
accurate the costs of a product and/or service, the more accurately management can set the selling price. On
the other side, ABC does have a few challenges. As with any system that contains a lot of detailed reporting,
there is a cost associated with gathering and processing this data. This process may be time consuming and
take away from business activities. For example, when looking at tracking setup time per product, it would
involve that employee logging in the exact time he/she spent on the set up for Equipment A versus the time
spent on Equipment B. Then this information would have to be logged into the tracking system so that reports
could be run to add those costs to the proper equipment.
International Accounting
Our other topic in this unit looks at some of the rules of accounting. We are going to look at the U.S. rules of
accounting, the generally accepted accounting principles (GAAP), and the international accounting rules,
International Financial Reporting Standards (IFRS).
There is not just one set of required accounting rules all over the world. Each country can select the
accounting rules for their country, and this was fine when most countries were independent. However, as
countries traded and invested with one another, it became more difficult to have so many separate
accounting rules. IFRS was formed to unify accounting standards world-wide. Countries can elect to
participate in IFRS, and there are currently over 100 countries participating. The United States is not one of
the countries that has adopted IFRS as its accounting standards but has been working with IFRS to merge
some of the accounting rules.
The United States follows GAAP, which is established by the Financial Accounting Standards Board (FASB).
As noted above, some of the rules are similar between GAAP and IFRS; others are not. Keep in mind,
establishing one set of accounting standards for all countries is a significant task because there are many
things to consider. For example, accounting rules are based on a country’s legal, economic, and political
climates. In countries with very high inflation, the accounting system needs to take into account the current
value of assets as their worth is constantly changing, and, therefore, these countries need to revalue assets
(estimate the asset's worth). Yet, here in the United States, we base our asset value on historical costs (the
value on the bill showing what we paid for an item). Another example of a differing reason for accounting
standards is any country with an unstable political climate. That climate may lead to fluctuations in the
economy such as drastically devaluing currency or claiming assets. These are just a few examples of how
difficult it is to try and adopt one set of accounting standards world-wide and why the United States has been
slow to adopt international standards.
Remember, these accounting rules primarily relate to the preparation of financial statements for external
users. However, this same data is used by managers to make decisions and to prepare the various costing
reports we have seen so far in this course.
Conclusion
In this unit, we have looked in detail at preparing costing reports. These reports break down costs so that they
can more accurately be allocated to the products and/or services the organization produces. By allocating
these costs in more detail, we, as managers, can more accurately make business decisions such as setting
the selling price for products.
Also, in this unit we discussed both international and U.S. accounting standards. While there are some
similarities between the two systems, there are also a number of differences.
Reference
Jiambalvo, J. (2020). Managerial accounting (7th ed.). Wiley.
https://bookshelf.vitalsource.com/#/books/9781119577706
ACC 5301, Management Applications of Accounting 7
UNIT x STUDY GUIDE
Title
Suggested Unit Resources
In order to access the following resources, click the links below.
Review the International Financial Reporting Standards (IFRS) website to learn more about international
accounting standards.
International Financial Reporting Standards Foundation. (n.d.). IFRS home page. Retrieved from
https://www.ifrs.org/
Review the Financial Accounting Standards Board (FASB) website to learn more about FASB, the
organization that sets U.S. accounting standards.
Financial Accounting Standards Board. (n.d.). FASB home page. https://www.fasb.org/home
View the following video by accessing the Unit IV Additional Unit Resources folder in the unit.
The video Precor: Activity-Based Costing will demonstrate how activity-based costing techniques were used
at Precor.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching the video Precor: Activity-Based Costing in the Suggested Unit Resources, you may want to
answer the four Unit IV Questions. Note that the "View the Video" link referenced in each question is the
same Precor: Activity-Based Costing video linked above.
**## UnitIVStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit IV
Upon completion of this unit, students should be able to:
1. Compare and contrast U.S. and international accounting standards.
1.1 Identify key U.S. and international accounting standards.
1.2 Explain how key international factors affect business reporting.
5. Discuss compliance requirements of accounting information.
5.1 Identify key compliance and regulatory requirements.
Required Unit Resources
Chapter 6: Cost Allocation and Activity-Based Costing, pp. 6-1 – 6-25
In order to access the following resources, click the links below.
International Financial Reporting Standards. (n.d.). IFRS: Financial reporting for the world economy [Video].
https://www.ifrs.org/about-us/
Transcript for IFRS: Financial Reporting for the World Economy Video
Note: You must scroll through the available videos on the Financial Accounting Standards Board Video &
Podcasts page to access the following video:
Financial Accounting Foundation (Producer). (n.d.). The importance of GAAP [Video].
https://www.youtube.com/watch?v=bjwi4Zp2IiE
Transcript for The Importance of GAAP Video
Unit Lesson
Introduction
Welcome to Unit IV. We will be discussing two very different topics in this unit. We will start by discussing the
process of cost allocation. The main advantages of allocating these overhead costs is to more accurately
calculate the total cost of an organization's product and/or service. The second topic will introduce you to
international accounting standards and how these standards compare to U.S. accounting standards. Included
in this topic will be some key compliance and regulatory requirements needed for financial reporting.
Cost Allocation
We are going to start off with the basic concept of how costs are allocated, then we will go into a more
specific process of cost allocation known as activity-based-costing.
UNIT IV STUDY GUIDE
Cost Allocation and
International Accounting
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Basic Cost Allocation
The first two items we will discuss are cost
objectives and cost pools. Cost objectives are used
to determine how products or services costs are
allocated within the company. Going back to our
previous example of a computer manufacturing
company, the cost objectives would be the types of
computers the company produces. For this
example, we will say the company makes desktop
and laptop computers.
Cost pools are the overhead costs to be allocated.
For example, at our computer manufacturing
company, some of the cost pools would include the
cost of depreciation for the factory equipment and
factory building, management's salaries, and the
cost of factory utilities. The relationship between
cost objectives and cost pools can be shown in the
diagram here:
Now, we will move to defining an allocation base. Allocation base defines how the costs will be allocated
between the products and/or services produced. In our example we will allocate these overhead costs (cost
pools) based on the number of products (cost objectives) produced. So, if we make 100 computers per day in
total and 60 of those computers are desktops and 40 of those computers are laptops, we would allocate the
total overhead costs on a 60/40 split based on the number of each type of computer manufactured.
Activity-Based-Costing (ABC)
In ABC costing, we are still allocating the costs, but we will be allocating costs on a more specific basis. For
instance, using our computer manufacturing example again, instead of allocating all of the overhead costs in
the cost pools simply 60/40 based on the number of computers produced, we are going to break down these
overhead costs using cost drivers to more accurately allocate costs. Cost drivers are used to identify the
usage of each overhead item for each product. For example, instead of just grouping the cost of depreciation
for the equipment and factory into one large category, we are going to break down this amount by specific
usage for each machine and the factory separately. Therefore, we list the cost of depreciation for Equipment
A, cost of depreciation for Equipment B, and the cost of depreciation for the factory separately. We are still
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
going to base our allocation or driver on number of machine hours used by each type of product. The reason
here is that different products may use the different types of equipment a different number of hours.
Now let's see how all of this compares as we talk about the actual cost to make a desktop or laptop computer.
In our example, we will assume the cost of depreciation for the equipment and factory is $10,000 in total.
Using traditional costing, we split that $10,000 60/40 so desktop computers would be allocated $6,000 of
these costs and laptop computers $4,000 of these costs.
Just based on these numbers (of course there are additional costs), we could say, as managers, if we sell the
desktop computers for more than $6,000 and the laptop computers for more than $4,000, we would make a
profit. We then go ahead and set the selling price for desktops at $6,500 and the laptops at $4,500 each to
make a profit.
Now, let's look at using activity-based-costing for this same company. The total cost of depreciation for
equipment and the factory are the same at $10,000. The difference is in how we split up that total cost by
activity usage by product rather than just the number of units produced. In this example, the desktops and
laptops are produced using a different number of machine hours on different equipment; therefore, we are
allocating costs based on a more accurate cost driver, such as machine usage. As you can see, the total cost
of deprecation is exactly the same, but the cost allocated to each type of product is different. Therefore, in our
prior example, if we now sold the laptops for $4,500, we would be losing money on each sale because it costs
us $4,775. In addition, if we are pricing our desktops at $6,500, then this number may be too high for the
market since the cost is actually lower. If the price is too high for the market, the computers may not sell at all.
By more accurately determining the cost for the products and/or services of a company, the more accurate
selling price can be calculated.
ACC 5301, Management Applications of Accounting 4
UNIT x STUDY GUIDE
Title
As we have just seen in this example, it is important to allocate costs properly to each product and/or service
within an organization. The next section will look more closely at how these cost drivers are determined for
various levels of activities within an organization. There are four levels of activity we will be discussing: unit,
batch, product, and facility levels.
Unit Level
Unit level activities directly relate to the product or unit that that is being produced. An example of this for our
computer manufacturing company, would be the costs of the workers who distribute the raw materials (plastic,
wires, etc.) needed to make laptop computers to the factory floor so factory workers can assemble the laptop
computers.
Batch Level
Batch level activities would relate to the factory as a whole and not be specific to a particular product, as in
our unit level example—which only applied to laptop computers. An example of a batch level activity would be
the cost of labor for the factory worker that sets up Equipment A and B within the factory. In other words,
these two machines are used to make both laptop and desktop computers. The worker sets up the machines
that are used for both products.
Product Level
Product level relates to costs that benefit the company as a whole—not just one particular product, as with the
case of unit level. These costs would not include direct labor, as with the case of batch level. An example of
product level costs would be the salary of the engineer that designs the computers.
Facility Level
Facility level relates to the overall operation of the facility as a whole, not a particular product. An example of
this would be the cost of the salaries for the facility managers.
Below is a chart that summarizes the different level of activities, the associated costs, and the driver that may
be used for each level (Jiambalvo, 2020).
ACC 5301, Management Applications of Accounting 5
UNIT x STUDY GUIDE
Title
In addition to obtaining more accurate cost data by applying activities levels and detailed cost drivers, we
can also assign responsibility more fairly for the costs that we incur making the products and/or providing
the services of the organization. For example, the laptop division supervisor in the warehouse would have
the responsibility for unit costs associated with just the laptops, such as the cost of moving the raw materials
for laptops to the factory floor. Whereas, this same supervisor would not have control over product costs
such as the hiring of engineers to design new products. That responsibility would fall to the product
development manager.
Let's take a look at how the management levels within an organization relate to the activities levels for product
costing. As you can see, the higher the level of management, the more responsibility they have for costs
within the organization as a whole.
ACC 5301, Management Applications of Accounting 6
UNIT x STUDY GUIDE
Title
Benefits and Challenges of ABC
The main benefit of ABC is that it provides more accurate cost allocation data and reporting. The more
accurate the costs of a product and/or service, the more accurately management can set the selling price. On
the other side, ABC does have a few challenges. As with any system that contains a lot of detailed reporting,
there is a cost associated with gathering and processing this data. This process may be time consuming and
take away from business activities. For example, when looking at tracking setup time per product, it would
involve that employee logging in the exact time he/she spent on the set up for Equipment A versus the time
spent on Equipment B. Then this information would have to be logged into the tracking system so that reports
could be run to add those costs to the proper equipment.
International Accounting
Our other topic in this unit looks at some of the rules of accounting. We are going to look at the U.S. rules of
accounting, the generally accepted accounting principles (GAAP), and the international accounting rules,
International Financial Reporting Standards (IFRS).
There is not just one set of required accounting rules all over the world. Each country can select the
accounting rules for their country, and this was fine when most countries were independent. However, as
countries traded and invested with one another, it became more difficult to have so many separate
accounting rules. IFRS was formed to unify accounting standards world-wide. Countries can elect to
participate in IFRS, and there are currently over 100 countries participating. The United States is not one of
the countries that has adopted IFRS as its accounting standards but has been working with IFRS to merge
some of the accounting rules.
The United States follows GAAP, which is established by the Financial Accounting Standards Board (FASB).
As noted above, some of the rules are similar between GAAP and IFRS; others are not. Keep in mind,
establishing one set of accounting standards for all countries is a significant task because there are many
things to consider. For example, accounting rules are based on a country’s legal, economic, and political
climates. In countries with very high inflation, the accounting system needs to take into account the current
value of assets as their worth is constantly changing, and, therefore, these countries need to revalue assets
(estimate the asset's worth). Yet, here in the United States, we base our asset value on historical costs (the
value on the bill showing what we paid for an item). Another example of a differing reason for accounting
standards is any country with an unstable political climate. That climate may lead to fluctuations in the
economy such as drastically devaluing currency or claiming assets. These are just a few examples of how
difficult it is to try and adopt one set of accounting standards world-wide and why the United States has been
slow to adopt international standards.
Remember, these accounting rules primarily relate to the preparation of financial statements for external
users. However, this same data is used by managers to make decisions and to prepare the various costing
reports we have seen so far in this course.
Conclusion
In this unit, we have looked in detail at preparing costing reports. These reports break down costs so that they
can more accurately be allocated to the products and/or services the organization produces. By allocating
these costs in more detail, we, as managers, can more accurately make business decisions such as setting
the selling price for products.
Also, in this unit we discussed both international and U.S. accounting standards. While there are some
similarities between the two systems, there are also a number of differences.
Reference
Jiambalvo, J. (2020). Managerial accounting (7th ed.). Wiley.
https://bookshelf.vitalsource.com/#/books/9781119577706
ACC 5301, Management Applications of Accounting 7
UNIT x STUDY GUIDE
Title
Suggested Unit Resources
In order to access the following resources, click the links below.
Review the International Financial Reporting Standards (IFRS) website to learn more about international
accounting standards.
International Financial Reporting Standards Foundation. (n.d.). IFRS home page. Retrieved from
https://www.ifrs.org/
Review the Financial Accounting Standards Board (FASB) website to learn more about FASB, the
organization that sets U.S. accounting standards.
Financial Accounting Standards Board. (n.d.). FASB home page. https://www.fasb.org/home
View the following video by accessing the Unit IV Additional Unit Resources folder in the unit.
The video Precor: Activity-Based Costing will demonstrate how activity-based costing techniques were used
at Precor.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching the video Precor: Activity-Based Costing in the Suggested Unit Resources, you may want to
answer the four Unit IV Questions. Note that the "View the Video" link referenced in each question is the
same Precor: Activity-Based Costing video linked above.
**## ManagementApplicationsofAccountingACC5301UnitIVAssignment.docx**
2
Management Applications of Accounting ACC 5301 Unit IV Assignment
This assignment measures your mastery of ULOs 1.1, 1.2, and 5.1.
**Assignment Objective**: For this assignment, you will research and compare international and U.S. accounting standards. This will enable you to see how the different reporting methods affect business and how product costs are affected by international business.
In the assignment you will do the following:
1. Compare and contrast basic U.S. and international financial accounting standards.
2. Explain how key international factors affect business reporting.
3. Identify key compliance and regulatory requirements.
**Length**: Using the
Unit IV Research Report Template, prepare a three-to-four-page written report covering the items listed below (page length does not include the title and reference pages).
**References**: At least three peer-reviewed sources are required. Resources used are required to be scholarly/academic in nature and found in the CSU Library. APA Style is required for citations and references.
**Details**: First, start the report with an introduction section, per the assignment template provided.
Part 1: Select financial statements for two related (e.g., computer manufactures, pharmaceutical companies, cell phone companies, etc.) businesses; one that uses U.S. accounting reporting and the other that uses international accounting reporting. Identify the following items:
1. Provide the name, location, and accounting standards used for each business.
2. Compare and contrast three major differences you see in the way the financial data is presented on the financial statements.
3. Identify which set of financial statements you think is the easiest to understand and provides you with most accurate cost data as a manager (Do not forget to look at the notes to the financial statements).
Part 2: Analyze and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
Part 3: Discuss three compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, or strict regulations on the wages paid to workers?
End this report with the key observations and present any future recommendations.
**Submission**: Save the submission as a Word document and upload the document to Blackboard.
**## UnitIV_ResearchReport_Template.docx**
1
5
**Title of the Paper Goes Here**
Student Name
Institution
ACC 5301 Management Applications of Accounting
Instructor
Date
**Abstract**
The abstract
is an overview of the paper, written after completion. Other researchers use the abstract to determine if your work will be useful to them. The abstract should include the background, hypothesis or research question, methodology for data collection and analysis, the findings of your research, and conclusions. It should be between 100–150 words. This is done when the paper is complete.
**Title of Paper**
Remember this part of the paper is double spaced in APA format.
The
_Introduction_ should lead readers into the topic and its importance. Introductions typically include the overall topic of the paper, the specific focus of the paper within the larger topic, the main points in the paper, the kind of paper (study, argument, critique, discussion), and the purpose.
_Writing tip:_ The length of the introduction should be in proportion to the length of the paper. Also ask yourself, “With my purpose and my audience, how do I engage my readers best?” In the introduction, you set the tone of the piece, establish your voice, and demonstrate your writing style; be authentic to your purpose and your audience.
**Part 1 Financial Statement Comparison**
_Identify_ the name, location, and accounting standards used for each of the two related businesses you selected
**.**
_Compare and contrast_ three major differences you see in the way the financial data is presented on the financial statements
Identify which set of financial statements you think are the easiest to understand and that provide you with the most accurate cost data as a manager. (Do not forget to look at the notes to the financial statements also.)
**Part 2 International Factors**
_Analyze_ and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
**Part 3 Compliance/Regulatory Issues**
_Discuss_ any compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, strict regulations on the wages paid to workers, etc.
**Conclusions and Recommendations**
_The conclusion_ section
should summarize for the readers the topics of importance that led to your final conclusions/analysis regarding this case. Include some specific areas of focus from your analysis to reinforce your conclusion.
**References**
Include complete references in proper APA format for all of the citations
_listed_ in your paper. Be sure to use the library for the required number of sources. Additional sources can be used but should be scholarly. Present your references in alphabetical order.
**## UnitIVStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit IV
Upon completion of this unit, students should be able to:
1. Compare and contrast U.S. and international accounting standards.
1.1 Identify key U.S. and international accounting standards.
1.2 Explain how key international factors affect business reporting.
5. Discuss compliance requirements of accounting information.
5.1 Identify key compliance and regulatory requirements.
Required Unit Resources
Chapter 6: Cost Allocation and Activity-Based Costing, pp. 6-1 – 6-25
In order to access the following resources, click the links below.
International Financial Reporting Standards. (n.d.). IFRS: Financial reporting for the world economy [Video].
https://www.ifrs.org/about-us/
Transcript for IFRS: Financial Reporting for the World Economy Video
Note: You must scroll through the available videos on the Financial Accounting Standards Board Video &
Podcasts page to access the following video:
Financial Accounting Foundation (Producer). (n.d.). The importance of GAAP [Video].
https://www.youtube.com/watch?v=bjwi4Zp2IiE
Transcript for The Importance of GAAP Video
Unit Lesson
Introduction
Welcome to Unit IV. We will be discussing two very different topics in this unit. We will start by discussing the
process of cost allocation. The main advantages of allocating these overhead costs is to more accurately
calculate the total cost of an organization's product and/or service. The second topic will introduce you to
international accounting standards and how these standards compare to U.S. accounting standards. Included
in this topic will be some key compliance and regulatory requirements needed for financial reporting.
Cost Allocation
We are going to start off with the basic concept of how costs are allocated, then we will go into a more
specific process of cost allocation known as activity-based-costing.
UNIT IV STUDY GUIDE
Cost Allocation and
International Accounting
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Basic Cost Allocation
The first two items we will discuss are cost
objectives and cost pools. Cost objectives are used
to determine how products or services costs are
allocated within the company. Going back to our
previous example of a computer manufacturing
company, the cost objectives would be the types of
computers the company produces. For this
example, we will say the company makes desktop
and laptop computers.
Cost pools are the overhead costs to be allocated.
For example, at our computer manufacturing
company, some of the cost pools would include the
cost of depreciation for the factory equipment and
factory building, management's salaries, and the
cost of factory utilities. The relationship between
cost objectives and cost pools can be shown in the
diagram here:
Now, we will move to defining an allocation base. Allocation base defines how the costs will be allocated
between the products and/or services produced. In our example we will allocate these overhead costs (cost
pools) based on the number of products (cost objectives) produced. So, if we make 100 computers per day in
total and 60 of those computers are desktops and 40 of those computers are laptops, we would allocate the
total overhead costs on a 60/40 split based on the number of each type of computer manufactured.
Activity-Based-Costing (ABC)
In ABC costing, we are still allocating the costs, but we will be allocating costs on a more specific basis. For
instance, using our computer manufacturing example again, instead of allocating all of the overhead costs in
the cost pools simply 60/40 based on the number of computers produced, we are going to break down these
overhead costs using cost drivers to more accurately allocate costs. Cost drivers are used to identify the
usage of each overhead item for each product. For example, instead of just grouping the cost of depreciation
for the equipment and factory into one large category, we are going to break down this amount by specific
usage for each machine and the factory separately. Therefore, we list the cost of depreciation for Equipment
A, cost of depreciation for Equipment B, and the cost of depreciation for the factory separately. We are still
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
going to base our allocation or driver on number of machine hours used by each type of product. The reason
here is that different products may use the different types of equipment a different number of hours.
Now let's see how all of this compares as we talk about the actual cost to make a desktop or laptop computer.
In our example, we will assume the cost of depreciation for the equipment and factory is $10,000 in total.
Using traditional costing, we split that $10,000 60/40 so desktop computers would be allocated $6,000 of
these costs and laptop computers $4,000 of these costs.
Just based on these numbers (of course there are additional costs), we could say, as managers, if we sell the
desktop computers for more than $6,000 and the laptop computers for more than $4,000, we would make a
profit. We then go ahead and set the selling price for desktops at $6,500 and the laptops at $4,500 each to
make a profit.
Now, let's look at using activity-based-costing for this same company. The total cost of depreciation for
equipment and the factory are the same at $10,000. The difference is in how we split up that total cost by
activity usage by product rather than just the number of units produced. In this example, the desktops and
laptops are produced using a different number of machine hours on different equipment; therefore, we are
allocating costs based on a more accurate cost driver, such as machine usage. As you can see, the total cost
of deprecation is exactly the same, but the cost allocated to each type of product is different. Therefore, in our
prior example, if we now sold the laptops for $4,500, we would be losing money on each sale because it costs
us $4,775. In addition, if we are pricing our desktops at $6,500, then this number may be too high for the
market since the cost is actually lower. If the price is too high for the market, the computers may not sell at all.
By more accurately determining the cost for the products and/or services of a company, the more accurate
selling price can be calculated.
ACC 5301, Management Applications of Accounting 4
UNIT x STUDY GUIDE
Title
As we have just seen in this example, it is important to allocate costs properly to each product and/or service
within an organization. The next section will look more closely at how these cost drivers are determined for
various levels of activities within an organization. There are four levels of activity we will be discussing: unit,
batch, product, and facility levels.
Unit Level
Unit level activities directly relate to the product or unit that that is being produced. An example of this for our
computer manufacturing company, would be the costs of the workers who distribute the raw materials (plastic,
wires, etc.) needed to make laptop computers to the factory floor so factory workers can assemble the laptop
computers.
Batch Level
Batch level activities would relate to the factory as a whole and not be specific to a particular product, as in
our unit level example—which only applied to laptop computers. An example of a batch level activity would be
the cost of labor for the factory worker that sets up Equipment A and B within the factory. In other words,
these two machines are used to make both laptop and desktop computers. The worker sets up the machines
that are used for both products.
Product Level
Product level relates to costs that benefit the company as a whole—not just one particular product, as with the
case of unit level. These costs would not include direct labor, as with the case of batch level. An example of
product level costs would be the salary of the engineer that designs the computers.
Facility Level
Facility level relates to the overall operation of the facility as a whole, not a particular product. An example of
this would be the cost of the salaries for the facility managers.
Below is a chart that summarizes the different level of activities, the associated costs, and the driver that may
be used for each level (Jiambalvo, 2020).
ACC 5301, Management Applications of Accounting 5
UNIT x STUDY GUIDE
Title
In addition to obtaining more accurate cost data by applying activities levels and detailed cost drivers, we
can also assign responsibility more fairly for the costs that we incur making the products and/or providing
the services of the organization. For example, the laptop division supervisor in the warehouse would have
the responsibility for unit costs associated with just the laptops, such as the cost of moving the raw materials
for laptops to the factory floor. Whereas, this same supervisor would not have control over product costs
such as the hiring of engineers to design new products. That responsibility would fall to the product
development manager.
Let's take a look at how the management levels within an organization relate to the activities levels for product
costing. As you can see, the higher the level of management, the more responsibility they have for costs
within the organization as a whole.
ACC 5301, Management Applications of Accounting 6
UNIT x STUDY GUIDE
Title
Benefits and Challenges of ABC
The main benefit of ABC is that it provides more accurate cost allocation data and reporting. The more
accurate the costs of a product and/or service, the more accurately management can set the selling price. On
the other side, ABC does have a few challenges. As with any system that contains a lot of detailed reporting,
there is a cost associated with gathering and processing this data. This process may be time consuming and
take away from business activities. For example, when looking at tracking setup time per product, it would
involve that employee logging in the exact time he/she spent on the set up for Equipment A versus the time
spent on Equipment B. Then this information would have to be logged into the tracking system so that reports
could be run to add those costs to the proper equipment.
International Accounting
Our other topic in this unit looks at some of the rules of accounting. We are going to look at the U.S. rules of
accounting, the generally accepted accounting principles (GAAP), and the international accounting rules,
International Financial Reporting Standards (IFRS).
There is not just one set of required accounting rules all over the world. Each country can select the
accounting rules for their country, and this was fine when most countries were independent. However, as
countries traded and invested with one another, it became more difficult to have so many separate
accounting rules. IFRS was formed to unify accounting standards world-wide. Countries can elect to
participate in IFRS, and there are currently over 100 countries participating. The United States is not one of
the countries that has adopted IFRS as its accounting standards but has been working with IFRS to merge
some of the accounting rules.
The United States follows GAAP, which is established by the Financial Accounting Standards Board (FASB).
As noted above, some of the rules are similar between GAAP and IFRS; others are not. Keep in mind,
establishing one set of accounting standards for all countries is a significant task because there are many
things to consider. For example, accounting rules are based on a country’s legal, economic, and political
climates. In countries with very high inflation, the accounting system needs to take into account the current
value of assets as their worth is constantly changing, and, therefore, these countries need to revalue assets
(estimate the asset's worth). Yet, here in the United States, we base our asset value on historical costs (the
value on the bill showing what we paid for an item). Another example of a differing reason for accounting
standards is any country with an unstable political climate. That climate may lead to fluctuations in the
economy such as drastically devaluing currency or claiming assets. These are just a few examples of how
difficult it is to try and adopt one set of accounting standards world-wide and why the United States has been
slow to adopt international standards.
Remember, these accounting rules primarily relate to the preparation of financial statements for external
users. However, this same data is used by managers to make decisions and to prepare the various costing
reports we have seen so far in this course.
Conclusion
In this unit, we have looked in detail at preparing costing reports. These reports break down costs so that they
can more accurately be allocated to the products and/or services the organization produces. By allocating
these costs in more detail, we, as managers, can more accurately make business decisions such as setting
the selling price for products.
Also, in this unit we discussed both international and U.S. accounting standards. While there are some
similarities between the two systems, there are also a number of differences.
Reference
Jiambalvo, J. (2020). Managerial accounting (7th ed.). Wiley.
https://bookshelf.vitalsource.com/#/books/9781119577706
ACC 5301, Management Applications of Accounting 7
UNIT x STUDY GUIDE
Title
Suggested Unit Resources
In order to access the following resources, click the links below.
Review the International Financial Reporting Standards (IFRS) website to learn more about international
accounting standards.
International Financial Reporting Standards Foundation. (n.d.). IFRS home page. Retrieved from
https://www.ifrs.org/
Review the Financial Accounting Standards Board (FASB) website to learn more about FASB, the
organization that sets U.S. accounting standards.
Financial Accounting Standards Board. (n.d.). FASB home page. https://www.fasb.org/home
View the following video by accessing the Unit IV Additional Unit Resources folder in the unit.
The video Precor: Activity-Based Costing will demonstrate how activity-based costing techniques were used
at Precor.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching the video Precor: Activity-Based Costing in the Suggested Unit Resources, you may want to
answer the four Unit IV Questions. Note that the "View the Video" link referenced in each question is the
same Precor: Activity-Based Costing video linked above.
**## ManagementApplicationsofAccountingACC5301UnitIVAssignment.docx**
2
Management Applications of Accounting ACC 5301 Unit IV Assignment
This assignment measures your mastery of ULOs 1.1, 1.2, and 5.1.
**Assignment Objective**: For this assignment, you will research and compare international and U.S. accounting standards. This will enable you to see how the different reporting methods affect business and how product costs are affected by international business.
In the assignment you will do the following:
1. Compare and contrast basic U.S. and international financial accounting standards.
2. Explain how key international factors affect business reporting.
3. Identify key compliance and regulatory requirements.
**Length**: Using the
Unit IV Research Report Template, prepare a three-to-four-page written report covering the items listed below (page length does not include the title and reference pages).
**References**: At least three peer-reviewed sources are required. Resources used are required to be scholarly/academic in nature and found in the CSU Library. APA Style is required for citations and references.
**Details**: First, start the report with an introduction section, per the assignment template provided.
Part 1: Select financial statements for two related (e.g., computer manufactures, pharmaceutical companies, cell phone companies, etc.) businesses; one that uses U.S. accounting reporting and the other that uses international accounting reporting. Identify the following items:
1. Provide the name, location, and accounting standards used for each business.
2. Compare and contrast three major differences you see in the way the financial data is presented on the financial statements.
3. Identify which set of financial statements you think is the easiest to understand and provides you with most accurate cost data as a manager (Do not forget to look at the notes to the financial statements).
Part 2: Analyze and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
Part 3: Discuss three compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, or strict regulations on the wages paid to workers?
End this report with the key observations and present any future recommendations.
**Submission**: Save the submission as a Word document and upload the document to Blackboard.
**## UnitIV_ResearchReport_Template.docx**
1
5
**Title of the Paper Goes Here**
Student Name
Institution
ACC 5301 Management Applications of Accounting
Instructor
Date
**Abstract**
The abstract
is an overview of the paper, written after completion. Other researchers use the abstract to determine if your work will be useful to them. The abstract should include the background, hypothesis or research question, methodology for data collection and analysis, the findings of your research, and conclusions. It should be between 100–150 words. This is done when the paper is complete.
**Title of Paper**
Remember this part of the paper is double spaced in APA format.
The
_Introduction_ should lead readers into the topic and its importance. Introductions typically include the overall topic of the paper, the specific focus of the paper within the larger topic, the main points in the paper, the kind of paper (study, argument, critique, discussion), and the purpose.
_Writing tip:_ The length of the introduction should be in proportion to the length of the paper. Also ask yourself, “With my purpose and my audience, how do I engage my readers best?” In the introduction, you set the tone of the piece, establish your voice, and demonstrate your writing style; be authentic to your purpose and your audience.
**Part 1 Financial Statement Comparison**
_Identify_ the name, location, and accounting standards used for each of the two related businesses you selected
**.**
_Compare and contrast_ three major differences you see in the way the financial data is presented on the financial statements
Identify which set of financial statements you think are the easiest to understand and that provide you with the most accurate cost data as a manager. (Do not forget to look at the notes to the financial statements also.)
**Part 2 International Factors**
_Analyze_ and discuss three international factors you think would affect the cost of the products made at the companies you selected and why.
**Part 3 Compliance/Regulatory Issues**
_Discuss_ any compliance and/or regulatory issues you think would be involved in the companies you have selected as they relate to the cost of the products made. For example, are there strict regulations on product pricing, tariffs imposed on raw materials needed to make the products, strict regulations on the wages paid to workers, etc.
**Conclusions and Recommendations**
_The conclusion_ section
should summarize for the readers the topics of importance that led to your final conclusions/analysis regarding this case. Include some specific areas of focus from your analysis to reinforce your conclusion.
**References**
Include complete references in proper APA format for all of the citations
_listed_ in your paper. Be sure to use the library for the required number of sources. Additional sources can be used but should be scholarly. Present your references in alphabetical order.
**## UnitIVStudyGuide.pdf**
ACC 5301, Management Applications of Accounting 1
Course Learning Outcomes for Unit IV
Upon completion of this unit, students should be able to:
1. Compare and contrast U.S. and international accounting standards.
1.1 Identify key U.S. and international accounting standards.
1.2 Explain how key international factors affect business reporting.
5. Discuss compliance requirements of accounting information.
5.1 Identify key compliance and regulatory requirements.
Required Unit Resources
Chapter 6: Cost Allocation and Activity-Based Costing, pp. 6-1 – 6-25
In order to access the following resources, click the links below.
International Financial Reporting Standards. (n.d.). IFRS: Financial reporting for the world economy [Video].
https://www.ifrs.org/about-us/
Transcript for IFRS: Financial Reporting for the World Economy Video
Note: You must scroll through the available videos on the Financial Accounting Standards Board Video &
Podcasts page to access the following video:
Financial Accounting Foundation (Producer). (n.d.). The importance of GAAP [Video].
https://www.youtube.com/watch?v=bjwi4Zp2IiE
Transcript for The Importance of GAAP Video
Unit Lesson
Introduction
Welcome to Unit IV. We will be discussing two very different topics in this unit. We will start by discussing the
process of cost allocation. The main advantages of allocating these overhead costs is to more accurately
calculate the total cost of an organization's product and/or service. The second topic will introduce you to
international accounting standards and how these standards compare to U.S. accounting standards. Included
in this topic will be some key compliance and regulatory requirements needed for financial reporting.
Cost Allocation
We are going to start off with the basic concept of how costs are allocated, then we will go into a more
specific process of cost allocation known as activity-based-costing.
UNIT IV STUDY GUIDE
Cost Allocation and
International Accounting
ACC 5301, Management Applications of Accounting 2
UNIT x STUDY GUIDE
Title
Basic Cost Allocation
The first two items we will discuss are cost
objectives and cost pools. Cost objectives are used
to determine how products or services costs are
allocated within the company. Going back to our
previous example of a computer manufacturing
company, the cost objectives would be the types of
computers the company produces. For this
example, we will say the company makes desktop
and laptop computers.
Cost pools are the overhead costs to be allocated.
For example, at our computer manufacturing
company, some of the cost pools would include the
cost of depreciation for the factory equipment and
factory building, management's salaries, and the
cost of factory utilities. The relationship between
cost objectives and cost pools can be shown in the
diagram here:
Now, we will move to defining an allocation base. Allocation base defines how the costs will be allocated
between the products and/or services produced. In our example we will allocate these overhead costs (cost
pools) based on the number of products (cost objectives) produced. So, if we make 100 computers per day in
total and 60 of those computers are desktops and 40 of those computers are laptops, we would allocate the
total overhead costs on a 60/40 split based on the number of each type of computer manufactured.
Activity-Based-Costing (ABC)
In ABC costing, we are still allocating the costs, but we will be allocating costs on a more specific basis. For
instance, using our computer manufacturing example again, instead of allocating all of the overhead costs in
the cost pools simply 60/40 based on the number of computers produced, we are going to break down these
overhead costs using cost drivers to more accurately allocate costs. Cost drivers are used to identify the
usage of each overhead item for each product. For example, instead of just grouping the cost of depreciation
for the equipment and factory into one large category, we are going to break down this amount by specific
usage for each machine and the factory separately. Therefore, we list the cost of depreciation for Equipment
A, cost of depreciation for Equipment B, and the cost of depreciation for the factory separately. We are still
ACC 5301, Management Applications of Accounting 3
UNIT x STUDY GUIDE
Title
going to base our allocation or driver on number of machine hours used by each type of product. The reason
here is that different products may use the different types of equipment a different number of hours.
Now let's see how all of this compares as we talk about the actual cost to make a desktop or laptop computer.
In our example, we will assume the cost of depreciation for the equipment and factory is $10,000 in total.
Using traditional costing, we split that $10,000 60/40 so desktop computers would be allocated $6,000 of
these costs and laptop computers $4,000 of these costs.
Just based on these numbers (of course there are additional costs), we could say, as managers, if we sell the
desktop computers for more than $6,000 and the laptop computers for more than $4,000, we would make a
profit. We then go ahead and set the selling price for desktops at $6,500 and the laptops at $4,500 each to
make a profit.
Now, let's look at using activity-based-costing for this same company. The total cost of depreciation for
equipment and the factory are the same at $10,000. The difference is in how we split up that total cost by
activity usage by product rather than just the number of units produced. In this example, the desktops and
laptops are produced using a different number of machine hours on different equipment; therefore, we are
allocating costs based on a more accurate cost driver, such as machine usage. As you can see, the total cost
of deprecation is exactly the same, but the cost allocated to each type of product is different. Therefore, in our
prior example, if we now sold the laptops for $4,500, we would be losing money on each sale because it costs
us $4,775. In addition, if we are pricing our desktops at $6,500, then this number may be too high for the
market since the cost is actually lower. If the price is too high for the market, the computers may not sell at all.
By more accurately determining the cost for the products and/or services of a company, the more accurate
selling price can be calculated.
ACC 5301, Management Applications of Accounting 4
UNIT x STUDY GUIDE
Title
As we have just seen in this example, it is important to allocate costs properly to each product and/or service
within an organization. The next section will look more closely at how these cost drivers are determined for
various levels of activities within an organization. There are four levels of activity we will be discussing: unit,
batch, product, and facility levels.
Unit Level
Unit level activities directly relate to the product or unit that that is being produced. An example of this for our
computer manufacturing company, would be the costs of the workers who distribute the raw materials (plastic,
wires, etc.) needed to make laptop computers to the factory floor so factory workers can assemble the laptop
computers.
Batch Level
Batch level activities would relate to the factory as a whole and not be specific to a particular product, as in
our unit level example—which only applied to laptop computers. An example of a batch level activity would be
the cost of labor for the factory worker that sets up Equipment A and B within the factory. In other words,
these two machines are used to make both laptop and desktop computers. The worker sets up the machines
that are used for both products.
Product Level
Product level relates to costs that benefit the company as a whole—not just one particular product, as with the
case of unit level. These costs would not include direct labor, as with the case of batch level. An example of
product level costs would be the salary of the engineer that designs the computers.
Facility Level
Facility level relates to the overall operation of the facility as a whole, not a particular product. An example of
this would be the cost of the salaries for the facility managers.
Below is a chart that summarizes the different level of activities, the associated costs, and the driver that may
be used for each level (Jiambalvo, 2020).
ACC 5301, Management Applications of Accounting 5
UNIT x STUDY GUIDE
Title
In addition to obtaining more accurate cost data by applying activities levels and detailed cost drivers, we
can also assign responsibility more fairly for the costs that we incur making the products and/or providing
the services of the organization. For example, the laptop division supervisor in the warehouse would have
the responsibility for unit costs associated with just the laptops, such as the cost of moving the raw materials
for laptops to the factory floor. Whereas, this same supervisor would not have control over product costs
such as the hiring of engineers to design new products. That responsibility would fall to the product
development manager.
Let's take a look at how the management levels within an organization relate to the activities levels for product
costing. As you can see, the higher the level of management, the more responsibility they have for costs
within the organization as a whole.
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Benefits and Challenges of ABC
The main benefit of ABC is that it provides more accurate cost allocation data and reporting. The more
accurate the costs of a product and/or service, the more accurately management can set the selling price. On
the other side, ABC does have a few challenges. As with any system that contains a lot of detailed reporting,
there is a cost associated with gathering and processing this data. This process may be time consuming and
take away from business activities. For example, when looking at tracking setup time per product, it would
involve that employee logging in the exact time he/she spent on the set up for Equipment A versus the time
spent on Equipment B. Then this information would have to be logged into the tracking system so that reports
could be run to add those costs to the proper equipment.
International Accounting
Our other topic in this unit looks at some of the rules of accounting. We are going to look at the U.S. rules of
accounting, the generally accepted accounting principles (GAAP), and the international accounting rules,
International Financial Reporting Standards (IFRS).
There is not just one set of required accounting rules all over the world. Each country can select the
accounting rules for their country, and this was fine when most countries were independent. However, as
countries traded and invested with one another, it became more difficult to have so many separate
accounting rules. IFRS was formed to unify accounting standards world-wide. Countries can elect to
participate in IFRS, and there are currently over 100 countries participating. The United States is not one of
the countries that has adopted IFRS as its accounting standards but has been working with IFRS to merge
some of the accounting rules.
The United States follows GAAP, which is established by the Financial Accounting Standards Board (FASB).
As noted above, some of the rules are similar between GAAP and IFRS; others are not. Keep in mind,
establishing one set of accounting standards for all countries is a significant task because there are many
things to consider. For example, accounting rules are based on a country’s legal, economic, and political
climates. In countries with very high inflation, the accounting system needs to take into account the current
value of assets as their worth is constantly changing, and, therefore, these countries need to revalue assets
(estimate the asset's worth). Yet, here in the United States, we base our asset value on historical costs (the
value on the bill showing what we paid for an item). Another example of a differing reason for accounting
standards is any country with an unstable political climate. That climate may lead to fluctuations in the
economy such as drastically devaluing currency or claiming assets. These are just a few examples of how
difficult it is to try and adopt one set of accounting standards world-wide and why the United States has been
slow to adopt international standards.
Remember, these accounting rules primarily relate to the preparation of financial statements for external
users. However, this same data is used by managers to make decisions and to prepare the various costing
reports we have seen so far in this course.
Conclusion
In this unit, we have looked in detail at preparing costing reports. These reports break down costs so that they
can more accurately be allocated to the products and/or services the organization produces. By allocating
these costs in more detail, we, as managers, can more accurately make business decisions such as setting
the selling price for products.
Also, in this unit we discussed both international and U.S. accounting standards. While there are some
similarities between the two systems, there are also a number of differences.
Reference
Jiambalvo, J. (2020). Managerial accounting (7th ed.). Wiley.
https://bookshelf.vitalsource.com/#/books/9781119577706
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Suggested Unit Resources
In order to access the following resources, click the links below.
Review the International Financial Reporting Standards (IFRS) website to learn more about international
accounting standards.
International Financial Reporting Standards Foundation. (n.d.). IFRS home page. Retrieved from
https://www.ifrs.org/
Review the Financial Accounting Standards Board (FASB) website to learn more about FASB, the
organization that sets U.S. accounting standards.
Financial Accounting Standards Board. (n.d.). FASB home page. https://www.fasb.org/home
View the following video by accessing the Unit IV Additional Unit Resources folder in the unit.
The video Precor: Activity-Based Costing will demonstrate how activity-based costing techniques were used
at Precor.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching the video Precor: Activity-Based Costing in the Suggested Unit Resources, you may want to
answer the four Unit IV Questions. Note that the "View the Video" link referenced in each question is the
same Precor: Activity-Based Costing video linked above.
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