Activity-Based Management Accounting for DoD Depot Maintenance

Abstract

Abstract : The current financial accounting system used in DoD maintenance depots is described, its shortcomings are examined, and a new approach that could be used to establish a management accounting system for the depots is described. The current accounting system does not provide the information to answer questions such as: what happens to costs when workload changes, when depots are consolidated, or when product mix changes? It does not differentiate between costs that vary and costs that do not vary with respect to relevant decision variables. It also does not support product costing because nondirect costs are tied solely to direct labor hours. A possible alternative management accounting system uses Activity-Based Costing (ABC). ABC links costs to activities and activities to products. By identifying the cost drivers for activities, it helps provide a better understanding of nondirect costs and what causes them to change. It also provides more accurate product cost information, which is essential as DoD moves to a reimbursable environment. ABC is briefly discussed. Examples of how ABC has been used in the depots are given. Also, how ABC could be applied in the future is described along with its probable benefits and costs. Accounting, Management accounting, Cost analysis, Depot maintenance cost.