Activity Based Costing Meaning Upd · Genuine & Tested

Allocate all $230k based on direct labor hours. Chairs (80% of hours) get $184k; Cabinets get $46k.

| Cost Pool (Activity) | Total Cost | Cost Driver | Chairs (usage) | Cabinets (usage) | | :--- | :--- | :--- | :--- | :--- | | Machine Setup | $100,000 | # of setups | 10 setups | 90 setups | | Quality Inspection | $80,000 | # of inspections | 200 inspections | 800 inspections | | Material Handling | $50,000 | # of moves | 50 moves | 150 moves | activity based costing meaning

Product A is overcosted (looks less profitable than it is). Product B is undercosted (looks more profitable than it is). Bad decisions follow. What is Activity-Based Costing (ABC)? Activity-Based Costing (ABC) is a costing method that assigns overhead and indirect costs to specific products or services based on the actual activities that drive those costs. Allocate all $230k based on direct labor hours