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

Exercise 10

Resource and Activity-Based Cost Drivers (Continuation of 5-56) Assume the same information as in problem 5-56 above, except that, to improve the accuracy of the ABC-costs, EEI has determined resource consumption rates based on cost drivers instead of estimated-percentage-consumption rates. The resource consumption cost drivers and driver levels are given below:

Resource Driver	Resource Total	Setup	Assembly	Inspect&Finishing	Packaging
Number of employees	17	5	6	4	2
Number of machines	10	3	3	3	1
Square feet, floor space	22,000	4,000	8,000	6,000	4,000

Required

1. Determine the amount of the cost pool for each of the four activities.

2. Determine the activity-based rates for assigning factory costs to the two products.

3. Determine the activity-based total unit cost for each of the products.

Step 1 of 4

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.