Activity Based Costing — Exercises

Basic Data Setup

Purchased and Manufactured Inventory Parts

Purpose: The purpose of this exercise is to enter two purchased and two manufactured parts used in the main exercises.

Windows:
Inventory Part

1. Enter inventory parts as described in the table below.

   Part No.	Description	Part Type	Estimated Material Cost
   XX-99-100	Wheel	Manufactured	--
   XX-99-200	Aluminum Rim	Purchased	200
   XX-99-400	Tire	Purchased	150

General exercise for Purchased Inventory Part
General exercise for Manufactured Inventory Part
General exercise for Define Material Costs

Work Center and Labor Class

Purpose: The purpose of this exercise is to enter the work center and labor class used in the main exercises.

Windows:
Work Center
Manufacturing Labor Class

1. Create an internal work center with the id XXASS (replacing XX with your initials) and the description Assembly.
2. Create a labor class with the id XXW (replacing XX with your initials) and the description Department Wheel.

General exercise for Work Center
General exercise for Labor Class

Cost Center

Purpose: The purpose of this exercise is to enter the cost center used in the main exercises.

Windows:
Code Part Values

1. Open the Code Part Values window and click the Cost Center tab.
2. Add a cost center with the id XXASS (replacing XX with your initials) and the description Assembly.

Required Data

Create Product Structure and Routing

Purpose: The purpose of this exercise is enter the product structure and routing for your manufactured part.

Windows:
Product Structure
Routing

1. Open the Product Structure window and query for your manufactured part.
2. Enter the structure for Part XX-99-100 Wheel that consists of 1 unit of XX-99-200 Aluminum Rim and 1 unit of XX-99-400 Tire.
3. Change status to Buildable.
4. Open the Routing window, query for your manufactured part and enter the routing operations defined below.

   Operation No.	Description	Work Center	Mach Setup	Mach Run Factor	Factor Unit	Labor Class	Labor Setup	Labor Run Factor	Factor Unit	Crew Size
   10	Prepare Assembly	XXASS	1	1	Hours/Unit	XXW	0	1	Hours/Unit	1
   20	Assembly	XXASS	1	2	Hours/Unit	XXW	0	1	Hours/Unit	1

5. Change status to Buildable.

General exercise for Creating Product Structure
General exercise for Creating Routing

Main Exercises

Purpose: The purpose of this exercise is to set up an activity based costing model for an assembly department.

Cost Drivers

Note: No basic data is needed to perform this exercise.

Purpose: The purpose of this exercise is to create a new activity cost driver and study the system generated cost drivers.

Windows:
Activity Cost Drivers

1. Open the Activity Cost Drivers window and populate the data. Study the system generated activity cost drivers.
2. Create a new line in the overview window.
3. Enter XX310 as ID (replacing XX with your initials), 'Fifty percent of the Number of Machine Setups' as description, Machine1 Overhead as overhead type, 310 as activity driver source and 50% as factor.

Note: User-defined cost drivers are seen as overhead costs.

Activities

Purpose: The purpose of this exercise is to create new activities connected to the assembly department.

Windows:
Cost Activity

1. Open the Cost Activity and query for your site.
2. Create the following activities:

Note: Cost buckets related to the cost activities are automatically created.

Cost Centers

Purpose: The purpose of this exercise is to define activities and costs for a cost center.

Windows:
Cost Center
Total Activity Cost

1. Open the Cost Center window.
2. Add the previously created cost center by adding a new record in this window. The cost center could be found in the list of values.
3. Enter the total cost for the cost center in cost set 2.
4. Click the Cost Center Activities tab. Enter cost activity LAB that you created in the previous exercise.
5. Enter the activity cost factor (100% means that the entire cost for the cost center in the Cost Center tab is to be connected to this activity).
6. Enter the estimated driver quantity (estimates the number of times the activity cost driver is performed).
7. Repeat step 4-6 for all your cost activities. The sum of the cost factors for all activities should be 100%.
8. Open the Total Activity Cost window, query for your cost activities and study the total cost for each activity and the cost centers to which they are connected.

Perform Cost Calculation

Purpose: The purpose of this exercise is to perform a cost calculation using activity based costing and study the result.

Windows:
Cost Template
Part Cost

1. Open the Cost Template window and create a new template with ID XXABC (replacing XX with your initials).
2. Add the previously created cost activities (cost buckets) to the template (i.e. LAB, MACH, PC and SET).
3. Open the Part Cost window and query for part XX-99-100 and cost set 2.
4. Change the cost template for the part to the new template XXABC.
5. Right-click and then click Cost Calculations/All Levels Part Cost Calculation.
6. Study the calculated values and compare with the product structure and routing.