Activity Based Costing Product Cost Direct Materials Direct
Activity Based Costing
Product Cost • Direct Materials • Direct Labor • Overhead
Plant Wide Overhead • Estimated Overhead dollars – annual/ • Estimated Driver = Predetermined Overhead Rate • • Drivers Direct Labor Hours Direct Labor $ Machine Hours
Activites • • Additional Activites Machine Set up Production Orders Shipments or customer deliveries General Factory Engineering Design Time Board Etching Parts Management Activity Measure Direct Labor Hour # of POs #shipments Machine hours Engineering Hrs #boards #parts
Determine Activity Rate • Estimate the cost pool Activity $/Estimated Driver • Do Exercise 3 -2 on page 142
Apply overhead • Traditional • Actual Driver X predetermined OH rate Activity Based Costing Actual Driver x activity rate Problem 3 -3 pg 143
Problem 3 -10 Trad vs ABC Direct materials Direct labor $1, 620, 000 $3, 825, 000 455, 000 975, 000 700, 000 1, 500, 000 $2, 775, 000 $6, 300, 000 25, 000 75, 000 $111. 00 $84. 00 Manufacturing overhead applied @ $20. 00 per direct labor-hour Total manufacturing cost (a) Number of units (b) Unit product cost (a) ÷ (b)
ABC Direct materials Direct labor Supporting direct labor Batch setups Product sustaining General factory Total cost (a) Number of units (b) Unit product cost (a) ÷ (b) $1, 620, 000 $3, 825, 000 455, 000 975, 000 253, 750 543, 750 425, 000 255, 000 325, 000 18, 125 54, 375 $3, 096, 875 $5, 978, 125 25, 000 75, 000 $123. 88 $79. 71
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