JOHN DEERE

COMPONENTS WORK
BY DHIO PRADIPTA
ADVANCED MANAGEMENT ACCOUNTING
REGULER CLASS

PRELIMENARY (PENDAHULUAN)
Definition of Activity Based Costing
cost calculation method, designed to provide cost information for manager to
make strategic and other decision, possible to influence capacity and fixed cost
The Teory of Activity Based Costing
has two phase;
identify significant activity in production of product and decide overhead cost
from activity to concern of cost resources used by organization activities;
identify a decent cost driver from each cost pool

 Three criteria for determine cost driver :

Level of Correlation
costing accurancy depends on degree of correlation
between
consumption from activity and from cost driver
Measurement Cost
more activity cost pool is used, more higher too accurancy
of measurement cost
Behavior Effect
in determine cost driver, company need to consider all the
possible consequence of behavior

B. DISCUSSION (PEMBAHASAN)
Secondary Problem :
1. Downfall of Agribusiness
2. Failure in competition to make an offer
3. Company Policy
4. An Arbitrarily of Equipment Division
5. Standard Cost System for determining cost

 Primary Problem :
Based explanation of secondary problem, we can conclude
that :

1.Unexact standard cost system used for overhead

allocation in large company that producing many
type of product, and not reflect actual cost in unit
2.Realizing utility of standard cost system and switch
to Activity Based Costing System, even result has
kindly, such as cost become bigger or smaller.

Analyze
Overhead allocation in each product is carried out into two steps. First,
identify activities that have significant production process for each
product. JDCW has significanted 7 activities in production process ;
Direct Labor Support
Machine Operation
Setup Hours
Production Order Activity
Material Handling
Parts Administration
General and Administrative

Second, determine a cost driver from each cost pool, that explained in
next table

COMPARISON ALLOCATED OVERHEAD USING ABC AND STANDART COST

ABC
No

activity

Direct labor
support

activity cost

cost driver

pool

total direct labor

1,898,000

dollars

Cost driver
quantity

Pool Rate

1,714,000

111%

STANDARD COST
2

Machine
Operation

setup hours

Production order
activity

Materials
Handling
Parts
Administration
General and
administrative
Total

4,045,000

1,111,000

817,000

Machine Hours

estimated number
of setup hours

loads

999,000

parts in system

998,000

Value Added

$114

15,600

$19.42

2,050

$487

10,887,000

No

$33.80

7,150

orders

the number of

$16.70

32,900

annual production

303,000

10,171,000

242,000

9.10%

Standard
Direct
Labor
Machine
Hours

Total

Total

Overhead

Overhead

Overhead

base

Rate

3,501,000

1,714,000

205%

6,670,000

242,000

$27.56

10,171,000

CONCLUSION (KESIMPULAN)

Determination of cost using standart cost is not suit to use for company which
produce many product with lots production activity and various product, and
standard cost doesnt relfect the actual unit cost.
When using Activity Based Costing. Company can know actual unit cost in each
product, so it will not happen in undercosting or overcosting when determine a
cost.

THANK YOU FOR ATTENTION