1. Activity Based Costing

2. Product Cost Direct Materials Direct Labor Overhead

3. Plant Wide Overhead Estimated Overhead dollars – annual/ Estimated Driver = Predetermined Overhead Rate Drivers Direct Labor Hours Direct Labor $ Machine Hours

4. Activites Additional ActivitesActivity Measure Machine Set upDirect Labor Hour Production Orders# of POs Shipments or customer deliveries#shipments General FactoryMachine hours Engineering Design TimeEngineering Hrs Board Etching#boards Parts Management#parts

5. Determine Activity Rate Estimate the cost pool Activity $/Estimated Driver Do Exercise 3-2 on page 142

6. Apply overhead Traditional Actual Driver X predetermined OH rate Activity Based Costing Actual Driver x activity rate Problem 3-3 pg143

7. Problem 3-10 Trad vs ABC Direct materials$1,620,000$3,825,000 Direct labor455,000975,000 Manufacturing overhead applied @ $20.00 per direct labor- hour 700,0001,500,000 Total manufacturing cost (a) $2,775,000$6,300,000 Number of units (b) 25,00075,000 Unit product cost (a) ÷ (b) $111.00$84.00

8. ABC Direct materials$1,620,000$3,825,000 Direct labor455,000975,000 Supporting direct labor 253,750543,750 Batch setups 425,000255,000 Product sustaining 325,000 General factory 18,125 54,375 Total cost (a) $3,096,875$5,978,125 Number of units (b) 25,00075,000 Unit product cost (a) ÷ (b) $123.88$79.71