Example 1 on implementing ActivityBased Costing ABC System
Example 1 on implementing Activity-Based Costing ABC System
Example on Implementing ABC Identify Cost Drivers (Step 2)
Example on Implementing ABC Compute activity-based Overhead Rates per cost driver. (Step 3)
Example on Implementing ABC Assign Overhead Cost to Products (Step 4) Cost driver Number of setups Machine hours Number of inspections Expected used of cost driver per activity 1500 setups 50, 000 Machine hours 2000 inspections Expected use of cost driver products N Y 500 1, 000 15, 000 35, 000 1, 200 800
Assign Overhead Cost to Product N (Step 4) Activity cost pools Setting up Machine Machining Inspecting Total assigned costs × = 500 $ 200 $ 100, 000 15, 000 $ 10 150, 000 1, 200 $ 50 60, 000 Expected use of cost driver product N activitybased Overhead Rate Cost assigned $ 310, 000
Assign Overhead Cost to Product Y (Step 4) Activity cost pools Setting up Machine Machining Inspecting Total assigned costs × = 1, 000 $ 200, 000 35, 000 $ 10 350, 000 800 $ 50 40, 000 Expected use of cost driver product Y activitybased Overhead Rate Cost assigned $ 590, 000
Compute the overhead cost per unit for each product (Unit produced 50, 000 for N and 80, 000 for Y ) N Y Total assigned costs 310, 000 590, 000 Total units produced 50, 000 80, 000 Overhead cost per unit 6. 2 7. 375
Commenting on the comparative overhead cost per unit. These data show that the total overhead assigned to 80, 000 Y is nearly as great as the overhead assigned to 50, 000 N. However, the overhead cost per Y is $7. 375 It is only $6. 2 per N.
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