ABC Action Analysis
Appendix 6A
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.
6A-2
Learning Objective 6-6
(Appendix 6A)
Prepare an action
analysis report using
activity-based costing
data and interpret the
report.
6A-3
Appendix 6A: ABC Action Analysis
Conventional ABC analysis does not
identify potentially relevant costs. An
action analysis report helps because it:
• Shows what costs have been
assigned to a cost object.
• Indicates how difficult it would be to
adjust those costs in response to
changes in the level of activity.
6A-4
Appendix 6A: ABC Action Analysis
Constructing an action analysis report
begins with the first-stage allocation process.
In addition to computing an overall activity
rate for each activity cost pool, an activity
rate is computed for each type of overhead
cost that is consumed supporting a given
activity.
Let’s revisit the stage-one allocations
from the Baxter Battery Company example
that we discussed earlier.
6A-5
Appendix 6A: ABC Action Analysis
$1,800,000 ÷ 10,000 orders = $180 per order
Other entries in the table are computed similarly.
6A-6
$180 per order × 4,000 orders = $720,000
Other entries in the table are computed similarly.
6A-7
$180 per order × 6,000 orders = $1,080,000
Other entries in the table are computed similarly.
6A-8
Appendix 6A: ABC Action Analysis
Next, label each cost using an ease of adjustment
code:
• Green costs adjust more or less automatically to
changes in activity level without any action by
managers.
• Yellow costs can be adjusted to changes in activity
level, but it would require management action to
realize the change in cost.
• Red costs can be adjusted to changes in activity
level only with a great deal of difficulty and with
management intervention.
6A-9
Appendix 6A: ABC Action Analysis
Action Analysis of LongLife Batteries
Sales
Green costs
Direct materials
Shipping costs
Green margin
$
$
18,700,000
$
7,000,000
11,700,000
$
11,222,000
478,000
$
1,610,000
(1,132,000)
6,000,000
1,000,000
Yellow costs
Direct labor
Indirect factory wages
Factory utilities
Administrative wages and salaries
Office equipment depreciation
Marketing wages and salaries
Selling expenses
Yellow margin
5,000,000
3,360,000
850,000
1,280,000
252,000
420,000
60,000
Red costs
Factory equipment depreciation
Factory building lease
Administrative building lease
Red margin
1,610,000
-
6A-10
End of Appendix 6A