Question

Explain the activity-based costing income statement and provide a hypothetical example of activity-based costing income statement in a manufacturing enterprise. Provide in-text citations and explain your example in detail

Answer 1

Activity Based Costing ! Activity-based Costing is a method of alloca. -ting costs to products based on their cost driven requirements. Under this method costs and first divided into various cost pools characterized by the activities which generate the cost of each pool. Then activity rates and calculated for each pool by dividing the total cost of the pool by the total number of its related anticipated cost drivens finally, costs are allocated by multiplying the actual numben of cost dravens generated by the applicable activity rate. An Activity Based Income Statement demonstreates costs divided by product lines as well as in total. Lest for enample! The income statement of Tina's Tea House Tina offens two products & Sweet tea and unsweet tea. Lets first observe the direct costs related to these products . Unsweet - sweet Disposable Cup $ 0.50 $0.50 Tea Blend $0.20 $0.20 Sugan 80.15 Total Product Cost $0.70 $0.85

Nent, Let's observe the monthly openating enpenses, as well as the cost drivens, nelated ю им сексона (мееr a ci-99): Adriana we colll some for each activity is haft. Total cost Teost Teon Cost Total tal AG Activity cost Driven driveres drivens cost. I hate w type unsweet Swot druivers (1/2) Rent $4ooo square 4 square 6gquand $400 pere Keet feet squane Squane requined " foot 125 200 $ 16 labocen thouw hours nouns pen houn hours Machine & 9500 Number | 256 544 setup of setups Setups setups setups per setup 10 feet feet wages / $3200 Direct 175 800 $3.125 Nent, using these activity rates and cost driven information, we'll allocate costs to the two products , beginning with unsweet tea. Unsweet Tea costdriven Activity rate Allocated Cost Rent u square $400 pensquane foot $ 1600 feet wages 75 hours $16 per hour $ 1200 machine 256 setups $3.125 pen setup $ 800 Setup Sweet Tea.. Nent, we'll allocate costs to Sweet Tea Cost Preven Activity rate Allocated cost Rent 16 square sqvaro | 3 цоо үеи Sqрекс | 9 uoo. цоо wages [ 125houw | $ 16 Pen hoon $2000 $3.125 Machine I suu Setups & 3 pen $ 1700 Setup set up foot

I Tea lotal Tea We are now ready to construct out a nity based Costing statement, assuming that you unsweet teas were sold for a $3.50 each and 2000 sweet teas were I sold at $ 4.50 each. Parcticulaens unsweet Sweet I Total Sales A $ 4900 $ 9,000 $13,900 Cast of goods sold : • Disposable cup $ 700 $ 1000 $ 1700 Tea Blend $ 280 $ 400 $ 680 Sugan - $ 300 $ 300 Total cost of goods sold $980 $ 1700 $2680 Gross mangin (A-B) $392018 7 300 $ 11220 TC ) Openating enpenses: Rent $. 1600 $2400 $ 4.000 wages $ 1.200 $ 2000 $ 3200 •Machine $800 $ 1700 $ 2.500 set up Total operating (D) $3.600 $6,100 $ 9,700 expenses Net profit (CD) $320 $ 1200 $1520-