Alfred Autoparts, Inc., previously used a cost system that allocated all factory overhead costs
to products based on 350 percent of direct labor cost. The company has just implemented an
ABC system that traces indirect costs to products based on consumption of major activities as
indicated below. Compare the total annual costs of Product X using both the traditional
volume based and the new ABC systems.
|
Annual Cost Driver |
Product X Cost |
||
|
Activity |
Quantity |
cost |
Driver Consumption |
|
Labor Machining Setup Production order Material handling Parts administration |
$300,000 20,000 hours 10,000 hours 2,000 orders 1,000 requisitions 12,000 parts |
$ 30,000 $500,000 $100,000 $200,000 $ 20,000 $480,000 |
$10,000 800 hours 100 hours 12 orders 5 requisitions 18 parts |
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