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ABC Action Analysis

Appendix 7A

PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright2012byTheMcGrawHillCompanies,Inc.Allrightsreserved.
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Learning Objective 6

(Appendix 7A)
Prepare an action
analysis report using
activity-based costing
data and interpret the
report.
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Appendix 7A: ABC Action Analysis


Conventional ABC analysis does not
identify potentially relevant costs. An
action analysis report helps because it:
Shows what costs have been
assigned to a cost object.
Indicates how difficult it would be to
adjust those costs in response to
changes in the level of activity.
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Appendix 7A: ABC Action Analysis

Constructing an action analysis report


begins with the first-stage allocation process.
In addition to computing an overall activity
rate for each activity cost pool, an activity
rate is computed for each type of overhead
cost that is consumed supporting a given
activity.
Lets revisit the stage-one allocations
from the Baxter Battery Company example
that we discussed earlier.
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Appendix 7A: ABC Action Analysis

$1,800,000 10,000 orders = $180 per order


Other entries in the table are computed similarly.
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$180 per order 4,000 orders = $720,000


Other entries in the table are computed similarly.
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$180 per order 6,000 orders = $1,080,000


Other entries in the table are computed similarly.
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Appendix 7A: ABC Action Analysis


Next, label each cost using an ease of adjustment
code:
Green costs adjust more or less automatically to
changes in activity level without any action by
managers.
Yellow costs can be adjusted to changes in activity
level, but it would require management action to
realize the change in cost.
Red costs can be adjusted to changes in activity
level only with a great deal of difficulty and with
management intervention.
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Appendix 7A: ABC Action Analysis

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