activity based costing in the public sector · krumwiede, k. r. (1998): the implementation stages...
TRANSCRIPT
© 2019 1Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Faculty of Economics and Social SciencesChair for Accounting, Auditing and Management Control
♦ Prof. Dr. Peter C. Lorson ♦ Dr. Ellen Haustein ♦
International Summerschool
“Innovations in Public Services Design and Delivery”
University of Modena, Italy - 01.09. - 08.09.2019
Activity Based Costing
in the Public Sector
AGENDA
© 2019 2Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector
V. Summary
Preface
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 3
Objectives
• Acquisition or updating of knowledge
a) about the need for cost accounting, their position in the company's accounting system and their importance for management
b) on the design of cost accounting systems, and the traditional product costing approach
• Learning and Understanding
a) the deficits in the overhead calculation, and- the reasons for activity based costing (ABC)
b) the logic behind ABC and the effects of ABC
• Ability
a) to recognize and describe areas of application for ABC
b) to critically appreciate the decision-making benefits of ABC
References
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 4
Anderson, B. M. (1993): Using Activity Based Costing for Efficiency and Quality, in: Government Finance Review, 9. Jg., Heft 3/1993, S. 7-9.
Buttross, T./Schmelzle, G. (2008): Activity-based Costing in the Public Sector, in: DEKKER, M. (Hrsg.):Encyclopedia of Public Administration and Public Policy, S. 47-52 (DOI:
10.1081/E-EPAP-120010726).
Bjørnenak, T. (1997): Diffusion and accounting: the case of ABC in Norway, in: Management accounting research, 8. Jg, Heft 1/1997, S. 3-17.
Carnegie, G. D./Wolnizer, P. W. (1996): Enabling accountability in museums, in: Accounting, Auditing & Accountability Journal, 9. Jg., Heft 5/1996, S. 84-99.
Chenhall, R./Langfield-Smith, K. (1998): The relationship between strategic priorities, management techniques and management accounting: an empirical investigation using a
sys-tems approach, in: Accounting, Organizations and Society, 23. Jg., Heft 3/1998, S. 243-264.
Cokins, G. (2007): Activity-Based Cost Management in the Public Sector, in: SHAH, A (Hrsg.): Public Sector Governance and Accountability Series – Budgeting
and Budgetary Institu-tions, 1. Aufl., Washington 2007, S. 203-233.
Cooper, R. (1988): The Rise of Activity-Based Costing – Part One: What is An Activity-Based Cost System?, in: Journal of Cost Management for the Manufacturing Industry, 2.
Jg., Heft 1/1988, S. 41-48.
Fortin, A./ Haffaf, H./Viger, C. (2007): The Measurement of Success of Activity-Basted Costing and Its Determinants: A Study within Canadian Federal Government
Organizations, 6. Jg., Heft 3/2017, S. 331-362.
Krumwiede, K. R. (1998): The implementation stages of activity-based costing and the impact of contextual and organizational factors, in: Journal of management accounting
research, 10. Jg., Heft 1/1998, S. 240-277.
Lorson, P./Schweitzer, Marcus. (2008): Kostenrechnung, in: Küting, K. (Hrsg.): Saarbrücker Handbuch der Betriebswirtschaftlichen Beratung, 4. Aufl., Herne 2008,
S. 342 – 510.
McGowan, A.S. / Klammer, T.P. (1997): Satisfaction with activity-based cost management implementation, in: Journal of Management Accounting Research, 9. Jg., Heft
1/1997, S. 217-237.
Mullins, D. R./Zorn C. K. (1999): Is Activity‐Based Costing Up to the Challenge When It Comes to Privatization of Local Government Services?, in: Public Budgeting &
Finance, 19. Jg., Heft 2/1999, S. 37-58.
Nguyen, V./Brooks, A. (1997): An Empirical Investigation of Adoption Issues Relating to Activity-Based Costing, in: Asian Accounting Review, 5. Jg., Heft 1/1997, S. 1-18.
AGENDA
© 2019 5Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector
V. Summary
I. Cost vs. Corporate Accounting
© 2019 6Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Company - overall view (simplified – flows of goods only)
• Add flows of money
• Characterise scope of
• financial accounting (FA) and
• scope of cost accounting (CA)
• Modify the entity model from goods
production to pure service delivery
Management systems
Capital Market
State
Pro
cu
rem
en
t m
ark
et Execution system
Sa
les
ma
rke
t
Procurement• Cash
• Work
forces
• Operating
resources
• Materials
• …
Production SalesStorage
unfinished
goods
Storage
finished
goods
(Lorson/Schweitzer, 2008)
I. Cost vs. Corporate Accounting
© 2019 7Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Corporate Accounting (business accounting, operational accounting)
• Function: Tools for planning, managing, controlling and monitoring.
• Definition: All procedures for the numerical recording and monitoring of
the entire business activity.
• Tasks:
• Documentary recording,
• Charging and
• Evaluation of all quantity- or value-related business transactions.
• Bases: Rules or conventions how to model transactions.
I. Cost vs. Corporate Accounting
© 2019 8Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Corporate Accounting (simplified)
Financial
Accounting
Financial
Reporting
Management
Accounting and
Management Control
• Acountability / Stewardship
• Decision usefulness for
investors
• Ensuring profitability, rentability and value creation
• Decision usefulness for managers
Financial Statements
(single, separate, consolidated)
Management Commentary
…
[Budget reports]
Cost accounting
…
Budgeting
Portfolio Investments
Sustainability
…
Subsection
Objectives
Instruments
Tasks and Exercises
© 2019 9Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Relationship between Financial Accounting and Management
Accounting in Different National Settings
• Are financial and management accounting closely reated in
• Germany
• Italy
• Spain
For example (with respect to cost accounting):
• Are there differences between costs and expenses?
I. Cost vs. Corporate Accounting
© 2019 10Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Ultimate Key Performance Measure (net profit/loss for the period)
Caveat: Primarily, management steers on cost accounting performance.
This is determined at least monthly.
Starting Point Financial Accounting Starting Point Cost Accounting
Revenues
– Expenses
Operating Revenues
– Operating Costs
= Financial Accounting
Performance
= Cost Accounting
Performance
+ other revenue
– other expenses
= Net Comprehensive Income of the Period (Financial Statements)
(Lorson/Schweitzer, 2008)
Examples?
Check-backs
© 2019 11Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Questions
What are the key differences between
goods and
service
producing (public) entities?
What is the core area of cost accounting (or what is scoped out)?
AGENDA
© 2019 12Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector
V. Summary
II. Design of Cost Accounting Systems
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 13
Cost Accounting Systems consist of three pillars
Initial Recognition
Registration /
documentation
Charging:
Allocation of direct
and indirect costs
INPUT esp. from
Financial bookkeeping
Charging:
Distribution of
indirect costs
Nature of Cost Accounting Component
What costs have been incurred?
Cost Center Accounting Component
Where have the costs been incurred?
Cost Object Accounting Component
What have the costs been incurred for?
Indirect
costs
Direct
costs
Product costs
per unit
Profit & Loss
Statement(Lorson/Schweitzer, 2008)
II. Design of Cost Accounting Systems
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 14
Cost accounting system – Schematic flow of information in a
Nature of Costs Accounting Cost Object Accounting(total & per unit for each product)
Cost Center Accounting(overhead costs)
• raw materials•auxiliary and
operating materials
•wages• salaries• social costs•maintenance
costs• taxes, fees•…
direct costs per unit
• material costs
• manufacturingcosts
production costs
total production (prime) costs
•general cost centers
•material centers
•manufacturingcenters
•administrationcenters
•distributioncenters
indirect material costs
indirect manu-facturing costs
indirect admini-stration costs
indirect selling expenses
indirect material costs
indirect manufacturing costs
administration costs
distribution costs
calc
uat
ion
rat
ios
indirect costs per Unit
direct special costs
direct special costs
direct material costs
direct manufacturing costs
sales / price per unit for each cost object (product)
Profit / loss of the periodP / L
per unit
Profit / Loss
(Lorson/Schweitzer, 2008)
Check-backs
© 2019 15Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Questions
Describe the accounting design of a cost accounting system?
Enumerate typical cost categories within each subsection of a cost accounting
system!
AGENDA
© 2019 16Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector
V. Summary
III. Traditional Product Costing Approach
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 17
Overhead Calculation – Principle
Direct material costs= Material
costs
= Production
costs
Indirect material costs --------As a percentage of direct material costs
Direct manufacturing costs (wages)
= Manufacturing
costsIndirect manufacturing costs --------As a percentage of direct manufacturing costs
Direct special manufacturing costs
Administration (overhead) costs--------As a percentage of production costs = Administation and
Distribution
(overhead)
costs
Distribution (overhead) costs--------As a percentage of production costs
Direct special distribution costs
= Total production costs (prime costs)
Tasks and Exercises
EUROverhead
ratesProduct A Product B
Direct material costs 49000 100 100
Indirect material costs 24500
Material costs 73500
Direct manufacturing costs (wages) 150000 50 50
Indirect manufacturing costs 91000
Direct special manufacturing costs none
Manufacturing costs 241000
Production costs 391000
Administration (overhead) costs 42900
Distribution (overhead) costs 20000
Direct special distribution costs none
Total production costs 453900
© 2019 18Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Overhead Calculation – Example (in EUR)In total more than 100 products and services
Tasks and Exercises
© 2019 19Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Overhead Calculation – Example
Product A Product B
• Consists of 1 raw material
and 1 component;
• No need for quality control and testing;
• Is produced based on 1 raw material;
• Need for quality control and testing;
• Encompasses two production steps; • Is produced in one single step;
• Introduced into the market 10 years
before; self-running best seller.
• Just introduced into the market during
the current period.
Discuss the results of this calculation beyond the follwoing background!
Procurement Production Admini-
stration
Distribution
2 Cost Units 2 Cost Units 1 Cost Unit 1 Cost Unit
Ordering/
handling
Quality
check and
control
Work-
shop 1
Work-
shop 2
- Advertising
Tasks and Exercises
© 2019 20Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
How should costs be allocated to product A and product B?
• Which cost categories?
• By which cost allocation bases?
Procurement Production Admini-
stration
Distribution
2 Cost Units 2 Cost Units 1 Cost Unit 1 Cost Unit
Ordering/
handling
Quality
check and
control
Work-
shop 1
Work-
shop 2
- Advertising
Product A Product B
Overhead Calculation – Example
III. Traditional Product Costing Approach
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 21
Cost structuring – traditional and activity-based view
Prodcurement Cost Unit Ordering / Handling
Wages & Saleries
Energy
Depreciation
Maintenance costs
…
# of orders?
# of different raw materials / processe
# of handling processes
III. Traditional Product Costing Approach
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 22
Product B
traditional ABC-perspective
Direct material costs 100
Indirect material costs %bases: average # order; # handling;
# quality tests per unit
= Material costs
Direct manufacturing costs (wages) 50
Indirect manufacturing costs % basis: average manufacturing time per unit
= Manufacturing costs
= PRODUCTION COSTS
Administration (overhead) costs % basis % ?
Distribution (overhead) costs % basis: average # advertisements per unit
= TOTAL PRODUCTION COSTS
Overhead Calculation – traditional and activity-based view
III. Traditional Product Costing Approach
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 23
Better calculation than based on overhead rates
Preferred alternative: Based on cost drivers and volumes
Enhance information content of cost accounting information
Cost drivers can be managed
Understanding the production process
ABC ABC/M (activity based costing & management)
ABC/M as a tool for efficiency improvements
Objectives (& outcome) of Activity Based Costing
III. Traditional Product Costing Approach
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 24
Summarizing
Industry sector – deficits of the traditional approach
• No cause-related cost allocation based on percentages on direct costs …
• inadequate allocation of costs of cross/functional processes
• organised around separate departments or cost centers
• No visibility • of the costs that belong to their end-to-end workflow
• of processes and their cost-drivers
• Error-prone cost allocation when the direct to indirect cost ratio declines
Service sector
• In the service sector direct costs are negligibly low
Public sector (more similar to service than industry sector)
Traditional costing approach is not relevant
Check-backs
© 2019 25Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Questions
„Traditional“ (full) absorbtion costing product calculation
• Scope?
• Name the main objective(s)!
• Describe the scheme!
• Highlight the inputs needed!
• Discuss deficits!
Activity based costing
• Scope?
• Name the main objective(s)!
• Describe the scheme!
• Highlight the inputs needed!
• Discuss improvements!
Is the tradtitional costing
approach applicable in the
public sector?
AGENDA
© 2019 26Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector - Examples
V. Summary
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 27
The Language of ABC/M Example: Back-office department of a license bureau, such as for driver or hunting licenses.
Chart of accounts view
License Processing Department
Actual Plan Favorible(unfavorible)
Salaries 621,400 600,000 (21,400)
Equipment 161,200 150,000 (11,200)
Travel
expenses
58,000 60,000 2,000
Supplies 43,900 40,000 (3,900)
Use and
occupancy
30,000 30,000 ––
Total 914,500 880,000 (34,500)
Activity based view
License Processing Department
Key or scan licenses 31,500
Analyze licenses 21,000
Suspend licenses 32,500
Receive licenses inquiries 101,500
Resolve member problems 83,400
Process batches 45,000
Determine eligibility 119,000
Make copies 145,500
Write correspondence 77,100
Attend training 158,000
Total 914,500
Pro
ce
ss
es
or c
tize
ns
#
(Cockins, 2007)
Different allocation scheme (all costs allocated to acitvities / more or less to working hours
High ratio of personell costs to total costs
VI. Activity based Costing in Public Sector
The Language of ABC/M – Technical issues
Activity analysis
Based on job descriptions
Based on interviews
Estimation
Percentage of working time per activity
Average time needed per activity
- Individual estimation
- Indirect approximation (total time/#)
Outputs
Average standards of performance (SOP)
Average cost per activity (cost recovery through fees?)
Traces to the benificiaries (senior citizens, beginning drivers …)
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 29
The Language of ABC/M Example: Back-office department of a license bureau, such as for driver or hunting licenses.
• ABC/M view begins to resolve the deficiencies of traditional CA by
• focusing on work activities
• using an “action verb–adjective–noun” grammar convention, such as
• “process building permits” or
• “open new taxpayer accounts.”
• a wording implying that activities can be enhanced through change,
improvement, or elimination
• substituting the chart of accounts through a chart of activities
(Cockins, 2007)
Tasks and Exercises
© 2019 30Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
What does it mean, if the following processes are eliminated by
digitalization (e.g. in terms of resource consumption)?
Decision usefulness of ABC-Information
Activity based view
License Processing Department
Key or scan licenses 31,500
Analyze licenses 21,000
Suspend licenses 32,500
Receive licensee inquiries 101,500
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 31
ABC/M – Case study „State Road Maintenance Department“Example: Back-office department of a license bureau, such as for driver or hunting licenses.
(Cockins, 2007)
Res
ou
rse
s
Cost unit 1
aaaa
aaaa
aaaa
aaaa
Cost unit 2
aaaa
aaaa
aaaa
aaaa
Cost unit 3
aaaa
aaaa
aaaa
aaaa
Output
Organization
sustainingType of
cement
Pavement
Signage
Lane stripe
Roadbed type
Final cost
objects
Process
measures
= activities
= process
= cost drivers
aaaa
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 32
ABC/M – Case study „State Road Maintenance Department“
(Cockins, 2007)
Road
surface
Lanes Location Total cost Miles Wark activity Unit cost
per mile
Asphalt 4 Interstate 270,137,078.40 125,342
Total
• Cut grass
• Install electronic
signs
• Fill potholes
• Plow road
• Paint stripes
• Replace signs
2,155.20
120.00
334.25
150.00
975.00
450.50
124.85
Bituminous 2 Rural 29,783,384.10 43,578
Total
• Cut grass
• Install electronic
signs
• Fill potholes
• Plow rouad
• Paint stripes
• Replace signs
683.45
220.00
0.00
65.00
250.00
112.20
36.25
Asphalt 4 County 95,567,207.84 65,672
Total
• Cut grass
• Install electronic
signs
• Fill potholes
• Plow rouad
• Paint stripes
• Replace signs
1,455.22
395.60
101.57
153.80
505.75
221.75
76.75
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 33
Examples
• A city performs two lawn
services for its taxpayers.
It picks up leaves after
residents rake them into
the street, and it cuts the
branches of trees that are
close to street signs and
power lines.
Buttross, T./Schmelzle, G.. (2008)
Tasks and Exercises
© 2019 34Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Relevant innovations in German public service delivery
What field of ABC application
could you imagine?
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 35
Examples
Fortin, A./ Haffaf, H./Viger, C. (2007)
Areas of decision use of ABC information
• Planning and budgeting
• Process/operations management
• Outsourcing decisions
• Products/services management decisions
• Restructuring or reorganzation decisions
• Products/services development strategies and decisions
• Driving process improvement decisions
• Identify opportunities for improvement
• Linked to performance measures
Tasks and Exercises
© 2019 36Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Relevant innovations in German public service delivery
What do you think about the
decision usfulness of ABC in those areas?
VI. Activity based Costing in Public Sector
© 2019 Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector 37
Summarizing
The field of application for ABC is very broad ranging
• from „production tasks“
(e.g. road construction)
• To proper „bureaucatic services“
(e.g. grant/issue licenses).
The management input of ABC ranges
• From immediate action-relevant
(e.g. process interfaces management)
• To first „impulses“ for reorganisations
(e.g. outsourcing)
Caveat: Decisions with
• multi-period effects must be made with dynamic methods of investment calculation (never with one-period cost accounting methods);
• input resource (reduction) effects must be jointly taken with explicit decisions how to reduce or raise the inputs (mainly with respect to persons (to be/no longer) employed in those fields.
Check-backs
© 2019 38Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Questions
Give examples for ABC-application fields!
What are prerequisites of ABC application?
Critically discuss the management revelance of ABC (e.g. using a self-
chosen example, that is analysed from all relevant perspectives)!
AGENDA
© 2019 39Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Preface
I. Cost Accounting vs. Corporate Accounting
II. Design of Cost Accounting Systems
III. Traditional Product Costing Approach vs. Activity based Costing
IV. Activity based Costing in the Public Sector - Examples
V. Summary
AGENDA
© 2019 40
Thank you very much for your attention!
Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Relevant innovations in German public service delivery
Prof. Dr. Peter Christoph Lorson
Dr. Ellen Haustein
Chair of Accounting, Auditing and Management Control
Ulmenstr. 69 | 18057 Rostock | Germany
Fon +49(0)381 498-4418 | Fon +49(0) 498 4421
[email protected] | [email protected]
www.bwl.uni-rostock.de/institut/lehrstuehle/abwl-
unternehmensrechnung-und-controlling-prof-dr-peter-
christoph-lorson/
www.diepsam.uni-rostock.de
www.empaci.uni-rostock.de
I. Cost vs. Corporate Accounting
© 2019 41Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Company - overall view (simplified – flows of money added)
• Add flows of money
• Characterise scope of
• financial accounting (FA) and
• scope of cost accounting (CA)
• Modify the entity model from goods
production to pure service delivery
Management systems
Capital Market
State
Pro
cu
rem
en
t m
ark
et Execution system
Sa
les
ma
rke
t
Procurement• Cash
• Work
forces
• Operating
resources
• Materials
• …
Production SalesStorage
unfinished
goods
Storage
finished
goods
I. Cost vs. Corporate Accounting
© 2019 42Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Company - overall view (simplified – flows of money added)
• Add flows of money
• Characterise scope of
• financial accounting (FA) and
• scope of cost accounting (CA)
• Modify the entity model from goods
production to pure service delivery
Management systems
Capital Market
State
Pro
cu
rem
en
t m
ark
et Execution system
Sa
les
ma
rke
t
Procurement• Cash
• Work
forces
• Operating
resources
• Materials
• …
Production SalesStorage
unfinished
goods
Storage
finished
goods
FA sphere
CA focus
I. Cost vs. Corporate Accounting
© 2019 43Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Company - overall view (simplified – adapted to service delivery)
• Add flows of money
• Characterise scope of
• financial accounting (FA) and
• scope of cost accounting (CA)
• Modify the entity model from goods
production to pure service delivery
Management systems
Capital Market
State
Pro
cu
rem
en
t m
ark
et Execution system
Sa
les
ma
rke
t / Citiz
en
s
Procurement• Cash
• Work
forces
• Operating
resources
• Materials
• …
Production
&
Sales /
Distribution /
Delivery
FA sphere
CA focus
Tasks and Exercises
EUROverhead
ratesProduct A Product B
Direct material costs 49000 100.00 100.00
Indirect material costs 24500 50,00% 50.00 50.00
Material costs 73500 150.00 150.00
Direct manufacturing costs (wages) 150000 50.00 50.00
Indirect manufacturing costs 91000 60,67% 30.33 30.33
Direct special manufacturing costs none
Manufacturing costs 241000 80.33 80.33
Production costs 391000 230.33 230.33
Administration (overhead) costs 42900 10,97% 25.27 25.27
Distribution (overhead) costs 20000 5,12% 11.78 11.78
Direct special distribution costs none
Total production costs 453900 267.39 267.39
© 2019 44Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Overhead Calculation – Example (in EUR)
Tasks and Exercises
© 2019 45Summerschool InnPubServ 01.-08.09.2019 - Haustein/Lorson - Activity-Based Costing in the Public Sector
Discuss the results of this calculation beyond the follwoing background!
Procurement Production Admini-
stration
Distribution
2 Cost Units 2 Cost Units 1 Cost Unit 1 Cost Unit
Ordering/
handling
Quality
check and
control
Work-
shop 1
Work-
shop 2
- Advertising
Product A Product B
Overhead Calculation – Example / Product costing of A and B
# of orders
# of handling
processes
# quality
checks
time
utilisation
time
utilisation
- # advertising acitivities