Question

Please provide discussions on variable pre-determined overhead make sure you include the formula in the parametric form/formula and explain all involved variables.

Then provide an example in which the ABC Income Statement has a separate determination, criteria across the three departments (Activities) that is Machining, Assebly and inspection.

Please answer in more than 350 words and in word format only.

Answer 1

Activity Based Accounting is a broader term which involves in, ‘collection, recording, analysis, controlling and reporting of activity related costs rather than departmental or cost centers related costs.’ It involves several activities like Activity Based Budgeting, Cost management based on activities, performance measurement of activity, reducing the costs through elimination of non value adding activities and also initiating innovative measure for reduction of costs.

there are lot of step involve in ABC -

1 Understanding and analyzing manufacturing process

2 Study of the Activities involved:

3 Activity Cost Pool

4. Cost Drivers

5.Identification of costs with the products

example of ABC income statement

example:- iam attaching this from net soluation

vity Pool	Cost Driver (CD) Activity Units	CD Unit Cost	Total Activity Product A	Total Indir Cost (A)
17. Purchase orders	No of purchase orders	$1,800	75	$135,000
18. Machine set ups	No of setups	$1,500	150	$225,000
19. Product packaging	No of product packages packed	$0.20	900,000	$180,000
20. Machine testing & calibration	No of tests	$100	1,000	$100,000
21. Maintenance & cleaning	No of batch runs	$1,150	200	$230,000

ctivity Pool	Cost Driver (CD)	CD Unit Cost	Total Activity Product B	Total Indir Cost (B)
17. Purchase orders	No of purchase orders	$1,800	25	$45,000
18. Machine set ups	No of setups	$1,500	100	$150,000
19. Product packaging	No of product packages packed	$0.20	500,000	$100,000
20. Machine testing & calibration	No of tests	$100	2,000	$200,000
21. Maintenance   & cleaning	No of batch runs	$1,150	50	$57,50

Activity Pool	Total Indirect Cost Product A [From Table 5A]	Cost per product unit Product A	Total Indirect cost Product B [From Table 5B]	Cost per product unit Product A	Total indirect cost A+B
17. Purchase orders	$135,000	$0.15	$45,000	$0.02	$180,000
18. Machine set ups	$225,000	$0.25	$150,000	$0.07	$150,000
19. Product packaging	$180,000	$0.20	$100,000	$0.05	$280,000
20. Machine testing & calibration	$100,000	$0.11	$200,000	$0.09	$300,000
21. Maintenance   & cleaning	$230,000	$0.26	$57,500	$0.03	$57,500
Total	$870,000	$0.97	$552,500	$0.26	$1,422,500