Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 46

Plant overhead for ABC Corp is $150 million per year, a portion of which (20 percent) is attributable to inspection costs which are charged to products on the basis of the number of parts in the products. The plant produces 500,000 units per year, and on the average, each product has 20 parts. What is the average inspection cost in a product? What is the inspection cost for a product with 50 parts?

Step 1 of 3

Activity based costing method which is commonly known as ABC method, is a costing method where indirect cost is assigned to product on the basis of activities identified, used in producing the product.