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

Exercise 52

Activity-Based Costing CHAC Labs Inc. is a company that performs cutting-edge genetic tests and research. The management accountant has identified the following overhead cost pools and cost drivers:

Cost Pools	Activity Costs	Cost Driver	Driver Consumption
Specimen preparation/engineering	$120,000	Pounds of materials	2,500
Equipment calibration/setup	80,000	Setup hours	1,250
Electric power	30,000	Kilowatt-hours	30,000

The following cost information pertains to the production of two of CHAC’s most popular genetic tests: T249 and T256:

	T249	T256
Number of units produced	2,000	900
Direct materials cost	$35,000	$40,000
Direct labor cost	$11,000	$20,000
Number of setup hours	140	300
Pounds of materials used	700	1,300
Kilowatt-hours	950	1,300

Required Use activity-based costing to calculate the unit cost for each test.

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.