Managerial Accounting:
An Introduction To Concepts,
Methods, And Uses
Chapter 3
Activity-Based Management
Maher, Stickney and Weil
Learning Objectives (Slide 1 of 2)




Identify strategic and operational
uses of activity-based management.
Differentiate between traditional
cost allocation methods and
activity-based costing.
Understand the concept of activitybased costing.
Identify the steps in activity-based
costing.
Learning Objectives (Slide 2 of 2)

Apply activity-based management and
costing to marketing.

Use the cost hierarchy to organize cost
information for decision-making.

Distinguish between resources used
and resources supplied, and measure
unused resource capacity.

Explain the difficulties of implementing
advanced cost-management systems.
Activity-based Costing & Management
(ABCM) (Slide 1 of 4)
 ABCM rests on this premise:
 Products require activities
 Activities consume resources
 To understand a product’s costs, one
must?
 Identify activities required to make the
product
Activity-based Costing & Management
(ABCM) (Slide 2 of 4)
 Identify resources used to provide for
those activities
 Figure the cost of those resources
 To be competitive, managers must
know both:
 Activities involved in making the goods
or providing the services, and
 The cost of those activities
Activity-based Costing &
Management (ABCM) (Slide 3 of 4)
 ABCM has 2 parts: What are they?
Activity-based Costing &
Management (ABCM)
 ABC treats mostly indirect costs
including:
 Overhead costs related to the
manufacture of a product or providing a
service
 Indirect costs of marketing a product
 Indirect costs of managing a company
Discuss Strategic Uses of
ABCM
What are the 4 steps of
activity analysis?
Define Cost Pools
Review the Value Chain
Discuss the Analysis of
Activities Cycle
Discuss Traditional
Allocation Methods
Discuss Activity-Based
Costing
What are the required steps of
activity-based costing?
Cost Rates per
Cost Driver Unit
 Calculate predetermined cost rate
for each cost driver as follows:
Cost Hierarchies
Activity Category
Examples
 Capacity
 Plant Mgmt & Depr
 Customer
 Mkt Research
 Product
 Product Specs &
Testing
 Batch
 Machine Setups
 Unit
 Direct Materials
Resources Used Vs.
Resources Supplied
 ABC estimates cost of resources used
by an activity as:
Cost driver rate X cost driver volume
 Cost of Resources supplied = amount
spent on the activity
 Difference between resources used
and supplied is unused capacity
If you have any comments or suggestions concerning this
PowerPoint Presentation for Managerial Accounting, An
Introduction To Concepts, Methods, And Uses, please contact:
Dr. Michael Blue, CFE, CPA, CMA
blue@bloomu.edu
Bloomsburg University of Pennsylvania