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ACC 406 (200)
Lecture

Activity-Based Costing & Management


Department
Accounting
Course Code
ACC 406
Professor
Alison Beavis

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Chapter 7
Activity Based Costing (ABC)
ABC VS Traditional Costing Approach
ABC
Overhead Costs
V
Activities
V
Products
Traditional Costing Approach
Overhead Costs
V
Organizational Units
V
Products
ABC is:
Various indirect cost pools are allocated to products, by using a number of activity
bases that bear a cause and effect relationship between activities and costs incurred.
Types/Levels of Activities:
1.Unit related activities (Machine Hours)
2.Batch related activities (Setup Costs)
3.Product related activities (Design Costs)
4.Facilities related activities (Providing space)
PROBLEM 7-55
1) Materials Handling Cost:
Labor (3 * $40,000 * 75%) = $90,000 (Time Driver)
Gasoline ($3 per move * 6000 moves) = $18,000 (Move Driver)
Depreciation (2 * $6000) = $12,000
Total = $120,000
2)Plantwide Rate = $600,000/ 20,000 DL Hours = $30/DL hour
BasicDeluxe
DM per
unitPrime Cost
Per Unit$80 $160
DL per unit
OH per unitOverhead Rate ($30) *
Driver (10,000 DL Hours) /
40,000 units
Overhead Rate ($30) *
Driver (10,000 DL Hours) /
20,000 units
Total cost per unit$87.50
3) Maintenance $114,000 / Main hrs
Engineering $120,000 / Eng Hrs
Materials Handling $120,000 / Moves
Setting Up $46,000 / setups
Purchasing $60,000 / requisitions
Receiving $40,000 / orders
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