Activity based costing

This topic has 3 replies, 2 voices, and was last updated 11 years ago by John Moffat.

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April 7, 2015 at 7:35 pm #240451
mohammed
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Sir ,

Set up cost total is give as $1400000

and below the cost driver mentioned are :
Production ( units ) Product A 50000 Product B 100000
Size of each production run Product A 500 Product B 2500

how do i work this out in the overhead and working and find out the absorption rate ?

Thankyou
April 8, 2015 at 1:31 am #240475
John Moffat
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For product A, if the produce 500 in each run, then in total there must be 50,000/500 = 100 runs. Similarly for B there must be 100,000/2,500 = 40 runs.

So there are 140 runs in total and the cost per run is $1,400,000/140

You can then carry on in the same way as in the free lecture on ABC.
April 8, 2015 at 6:02 am #240483
mohammed
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So in the working , for set up cost I write $10,000 for both Product A and Product B or do i have to multiply the 10,000 with something else ?
April 9, 2015 at 4:09 am #240581
John Moffat
Keymaster
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You multiply by the number of production runs to get the total overhead applicable to each product.

Again, you should watch the free lecture on ABC – I cannot type out the whole lecture here 🙂
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