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8 Activity-Based Costing Chapter Machining Assembly a cost system refinement more overhead cost pools
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Unit-level costs utilities, depreciation Batch-level costs set-up, order processing Product-sustaining costs engineering, design Facility-sustaining costs Typical Cost Driver Volume measure # of batches Complexity measure Volume measure Different Types of Costs
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Overhead costs are high. especially batch-level costs Products are diverse. processing / complexity batch size Costs affect pricing and product mix decisions. ABC is most valuable when… Cost Pools How many cost pools? cost / benefit Homogeneous pools share a common allocation base
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DM DL Overhead Total Product X $40 12 1 DLH Product Y $30 12 Indirect labor Equip. deprec. Indirect mater. Total MOH Total $320,000 540,000 40,000 $900,000 Cost $900,000 Driver 30,000 DLH Rate $30 / DLH Traditional Overhead Allocation
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Indirect labor Equip. deprec. Indirect mater. Total Mach set-upMachiningInspections $220,000$ 30,000 70,000 50,000470,00020,000 30,00010,000 $300,000$500,000$100,000 Total $320,000 540,000 40,000 $900,000 Mach set-up Machining Inspections Cost $300,000 500,000 100,000 Driver 1,500 set-ups 50,000 mh 2,000 inspect Rate Activity-Based Costing
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DM DL Inspections Total Product X $40 12 1/502/5 Set-ups Machining 1/501/5 1.2 mh4 mh Product Y $30 12 Allocate Overhead to Individual Jobs Compare to traditional costing:
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