Quiz 20: P20: Activity-Based Costing ABC

Business

The indicated worksheet should be reviewed. Cost of each product will be determined by activity-based cost system. The required worksheet is given below: img

The formulas are entered in the worksheet by using the cell reference. Rates are determined by dividing the number of the cost driver (setups, orders, etc.) by the total expected cost for that overhead item. Product costs are determined by multiplying the number of cost drivers for that product by the pool rate for that category. The required worksheet is given below: img

The management team for Company B is trying to reduce unit costs and believes that the easiest areas to save cost are setup and power. a. Annual setup costs are reduced by 25%. This will reduce the setup cost to $18,000. The calculation of unit cost is shown in the table given below: img b. The number of setups is reduced 50%. This will reduce the number of setups for Bubble to 3 and the number of setups for Burst to 5. The calculation of unit cost is shown in the table given below: img c. Annual power costs are reduced by 70%. This will reduce the power cost to $1,500. The calculation of unit cost is shown in the table given below: img

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