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.