Activity Based Costing (ABC) PDF
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Summary
This document discusses activity-based costing (ABC) and compares it to traditional costing methods. It details how to calculate costs for various activities involved in manufacturing and allocates costs to products. The document explores the advantages and disadvantages of using ABC, including cost efficiency, improved control, and decision-making.
Full Transcript
Manufacturing Costs Product XX Product YY Direct Materials P 80 P 60 Direct labor 24 24 Overhead 60* 60* Total Unit Cost P164 P 144 Activity Centers Estima...
Manufacturing Costs Product XX Product YY Direct Materials P 80 P 60 Direct labor 24 24 Overhead 60* 60* Total Unit Cost P164 P 144 Activity Centers Estimated Overhead Setting up machines P 1,200,000 Machining 2,000,000 Inspecting 400,000 Total P 3,600,000 Activity Centers Cost Drivers Expected Use of Cost Drivers per Activity Setting up machines No. of setups 3,000 setups Machining Machine hours 100,000 machine hours Inspecting No. of inspections 4,000 inspections Activity Centers Estimated Expected use of cost Activity-based Overhead driver per activity overhead rates Setting up machines P 1,200,000 3,000 setups P400/setup Machining 2,000,000 100,000 machine hrs P20/machine hr Inspecting 400,000 4,000 inspections P100/inspection Total P 3,600,000 Expected use of cost driver Activity Expected use of cost per Product Cost Drivers Centers driver per activity Product XX Product YY Setting up No. of setups 3,000 setups 1,000 2,000 machines Machining Machine hours 100,000 machine hrs 60,000 40,000 Inspecting No. of inspections 4,000 inspections 1,000 3,000 Expected use of cost Activity-based Allocated Overhead Activity Centers driver per Product overhead rates Costs (Product XX) Setting up machines 1,000 P 400 P 400,000 Machining 60,000 20 1,200,000 Inspecting 1,000 100 100,000 Total Allocated Costs (a) P1,700,000 Units Produced (b) 50,000 Overhead cost per unit (a/b) P 34 Expected use of cost Activity-based Allocated Overhead Activity Centers driver per Product overhead rates Costs (Product YY) Setting up machines 2,000 P 400 P 800,000 Machining 40,000 20 800,000 Inspecting 3,000 100 300,000 Total Allocated Costs (a) P1,900,000 Units Produced (b) 10,000 Overhead cost per unit (a/b) P 190 Product XX Product YY Manufacturing Costs Traditional Traditional ABC ABC Costing Costing Direct Materials P 80 P 80 P 60 P 60 Direct labor 24 24 24 24 Overhead 60 34 60 190 Total Unit Cost P164 P 138 P 144 P 274
