ABC In Class Hands On Example Traditional Method Information Page BUDGETED (PROJECTED) FORYEAR 202X Product A Product B Product C Totals Units To Be Produced for the Year 90,000 85,000 8,500 183,500 D L Hours Projected for the Year 135,000 125,000 1,000 261,000 Projected Budgeted Overhead for the Year Amount TOTAL BUDGETED O H $ 2,300,000 Step 1 Calculate the Overhead Application Rate Using a Traditional Volume Based Driver for the Next Year Use Direct Labor Hours as the Overhead Cost Driver Step 2 Assign the Direct Material Costs, Direct Labor Costs and Apply Overhead Costs Based On the Actual January Results ACTUAL RESULTS FOR THE MONTH OFJANUARY 202X Product A Product B Product C Totals Units Actually Produced 7,200 7,000 800 15,000 Actual D L Hours to Produce 10,500 9,500 90 20,090 Actual D L Cost $ 90,500 00 $ 100,000 00 $ 1,900 00 $ 192,400 00 Actual D M Cost $ 220,000 00 $ 350,000 00 $ 80,000 00 $ 650,000 00 TRADITIONAL METHOD Calculate the Overhead Application Rate Product A Product B Product C Totals Units To Be Produced for the Year 90,000 85,000 8,500 183,500 D L Hours Projected for the Year 135,000 125,000 1,000 261,000 Projected Budgeted Overhead for the Year Amount TOTAL BUDGETED O H $ 2,300,000 OH Application Rate TOTAL BUDGETED O H $ DIV 0 per D L Hour TOTAL D L Hours ACTUAL RESULTS FOR THE MONTH OF JANUARY 202X Product A Product B Product C Totals Units Actually Produced 7,200 7,000 800 15,000 Actual D L Hours to Produce 10,500 9,500 90 20,090 Actual D L Cost $ 90,500 00 $ 100,000 00 $ 1,900 00 $ 192,400 00 Actual D M Cost $ 220,000 00 $ 350,000 00 $ 80,000 00 $ 650,000 00 January Product Costs OH Rate Product A Product B Product C D L Cost D M Cost Overhead Applied DIV 0 TOTAL COST $ $ $ Units Produced Per Unit Cost Our Price(130 of cost) $ $ $ Competitor's Price $ 73 00 $ 98 00 $ 195 00 ABC In Class Hands On Example Information Page BUDGETED (PROJECTED) FOR YEAR 202X Product A Product B Product C Totals Units To Be Produced for the Year 90,000 85,000 8,500 183,500 D L Hours to Produce for the Year 135,000 125,000 1,000 261,000 D L Cost for the Year $ 1,200,000 $ 1,300,000 $ 19,000 2,519,000 D M Cost for the Year $ 2,750,000 $ 4,500,000 $ 1,000,000 8,250,000 Machine Hours for the Year 25,000 31,000 80,000 136,000 Inspection Hours for the Year 11,000 8,000 19,000 Engineering Hours for the Year 500 500 3,000 4,000 Facility Use (Square Feet) for the Year 10,000 00 5,000 00 5,000 00 20,000 00 Projected Budgeted Overhead Amount Cost Pool Driver Machine Cost Pool $ 800,000 Machine Hours Inspection Cost Pool $ 550,000 Inspection Hours Engineers Cost Pool $ 350,000 Engineering Hours Facility General Cost Pool $ 600,000 Square Footage TOTAL BUDGETED O H $ 2,300,000 Step 1 Calculate the ABC Overhead Application Rate Step 2 Assign the Direct Material Costs, Direct Labor Costs and Apply Overhead to the Actual January Results ACTUAL RESULTS FOR JANUARY 202X Product A Product B Product C Totals Units Produced 7,200 7,000 800 15,000 D L Hours to Produce 10,500 9,500 90 20,090 D L Cost $ 90,500 00 $ 100,000 00 $ 1,900 00 $ 192,400 00 D M Cost $ 220,000 00 $ 350,000 00 $ 80,000 00 $ 650,000 00 Machine Hours 2,500 3,200 6,500 12,200 Inspection Hours 700 900 1,600 Engineering Hours 35 42 260 337 Facility Use (Square Feet) 10,000 00 6,000 00 5,000 00 21,000 00 ABC METHOD Step 1 Calculate Overhead Pool Application Rates Product A Product B Product C Totals Units To Be Produced for the Year 75,000 80,000 8,000 163,000 D L Hours to Produce for the Year 119800 120000 1,200 241,000 D L Cost for the Year $ 1,237,500 $ 1,320,000 $ 19,200 2,576,700 D M Cost for the Year $ 2,775,000 $ 4,560,000 $ 1,096,000 8,431,000 Machine Hours for the Year 25,000 31,000 80,000 136,000 Inspection Hours for the Year 11,000 8,000 19,000 Engineering Hours for the Year 500 500 3,000 4,000 Facility Use (Square Feet) for the Year 10,000 00 6,000 00 5,000 00 21,000 00 Projected Budgeted Overhead Amount Cost Pool Driver Machine Cost Pool $ 800,000 Machine Hours for the Year Inspection Cost Pool $ 550,000 Inspection Hours for the Year Engineers Cost Pool $ 350,000 Engineering Hours for the Year Facility General Cost Pool $ 600,000 Square Footage for the Year TOTAL BUDGETED O H $ 2,300,000 Machine Cost Pool Application Rates TOTAL MACHINE COST TOTAL MACHINE HOURS 0 Inspection Cost Pool TOTAL INSP COST TOTAL INSP HOURS 0 Engineering Cost Pool TOTAL ENGINEERING COST TOTAL ENGINEERING HOURS 0 Facility Cost Pool FACILITIES GEN COST Convert Yearly Rate to Monthly 12 TOTAL SQ FT 0 0 Per Month Step 2 Assign Direct Costs and Apply Overhead to Actual Results ACTUAL RESULTS FOR JANUARY 202X Product A Product B Product C Totals Units Produced 7,200 7,000 800 15,000 D L Hours to Produce 10,500 9,500 90 20,090 D L Cost $ 90,500 00 $ 100,000 00 $ 1,900 00 $ 192,400 00 D M Cost $ 220,000 00 $ 350,000 00 $ 80,000 00 $ 650,000 00 Machine Hours 2,500 3,200 6,500 12,200 Inspection Hours 700 900 1,600 Engineering Hours 35 42 260 337 Facility Use (Square Feet) 10,000 00 6,000 00 5,000 00 21,000 00 OH Rate Product A Product B Product C D L Cost D M Cost Machine Applied OH 0 Inspection Applied OH 0 Engineers Applied OH 0 Facility General Applied Overhead 0 TOTAL COST Units Produced Per Unit Cost Our Target Price(130 of cost) $ $ $ Competitor's Price $ 73 00 $ 98 00 $ 195 00 What We Have Learned Traditonal Method Product A Product B Product C Cost Per Unit (Traditional Method) $ $ $ Target Price Per Unit (Traditional Method) $ $ $ Competitior Price Per Unit $ 73 00 $ 98 00 $ 195 00 ABC Method Cost Per Unit (ABC Method) $ $ $ Target Price Per Unit (ABC Method) $ $ $ Competitor's Price $ 73 00 $ 98 00 $ 195 00 1 Using a Traditional Costing method to allocate overhead, what is the per unit cost you calculated for Product A, Product B and Product C 2 Using an Activity Based Costing method to allocate overhead, what is the per unit cost you calculated for Product A, Product B and Product C 3 Based on your analysis, the results could be described best by the following statement

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Question: ABC In Class Hands On Example - Traditional Method Information Page BUDGETED (PROJECTED) FORYEAR 202X Product A Product B Product C Totals Units To Be

ABC In Class Hands On Example - Traditional Method Information Page
BUDGETED (PROJECTED) FORYEAR 202X
	Product A	Product B	Product C	Totals
Units To Be Produced for the Year	90,000	85,000	8,500	183,500
D.L. Hours Projected for the Year	135,000	125,000	1,000	261,000


Projected Budgeted Overhead for the Year	Amount

TOTAL BUDGETED O.H.	$ 2,300,000



Step # 1 Calculate the Overhead Application Rate Using a Traditional Volume Based Driver for the Next Year
Use Direct Labor Hours as the Overhead Cost Driver


Step # 2 - Assign the Direct Material Costs, Direct Labor Costs and Apply Overhead Costs Based On the Actual January Results


ACTUAL RESULTS FOR THE MONTH OFJANUARY 202X
	Product A	Product B	Product C	Totals
Units Actually Produced	7,200	7,000	800	15,000
Actual D.L. Hours to Produce	10,500	9,500	90	20,090
Actual D.L. Cost	$ 90,500.00	$ 100,000.00	$ 1,900.00	$ 192,400.00
Actual D.M Cost	$ 220,000.00	$ 350,000.00	$ 80,000.00	$ 650,000.00

TRADITIONAL METHOD:

Calculate the Overhead Application Rate:

		Product A	Product B	Product C	Totals
Units To Be Produced for the Year	90,000	85,000	8,500	183,500
D.L. Hours Projected for the Year	135,000	125,000	1,000	261,000


Projected Budgeted Overhead for the Year	Amount

TOTAL BUDGETED O.H.		$ 2,300,000


			OH Application Rate
TOTAL BUDGETED O.H. $			#DIV/0!	per D.L. Hour
TOTAL D.L. Hours


ACTUAL RESULTS FOR THE MONTH OF JANUARY 202X
		Product A	Product B	Product C	Totals
Units Actually Produced		7,200	7,000	800	15,000
Actual D.L. Hours to Produce		10,500	9,500	90	20,090
Actual D.L. Cost		$ 90,500.00	$ 100,000.00	$ 1,900.00	$ 192,400.00
Actual D.M Cost		$ 220,000.00	$ 350,000.00	$ 80,000.00	$ 650,000.00



January - Product Costs
	OH Rate	Product A	Product B	Product C
D.L. Cost
D.M Cost
Overhead Applied	#DIV/0!
TOTAL COST		$ -	$ -	$ -
Units Produced

Per Unit Cost

Our Price(130% of cost)		$ -	$ -	$ -
Competitor's Price		$ 73.00	$ 98.00	$ 195.00

ABC In Class Hands On Example - Information Page
BUDGETED (PROJECTED) FOR YEAR 202X
	Product A	Product B	Product C	Totals
Units To Be Produced for the Year	90,000	85,000	8,500	183,500
D.L. Hours to Produce for the Year	135,000	125,000	1,000	261,000
D.L. Cost for the Year	$ 1,200,000	$ 1,300,000	$ 19,000	2,519,000
D.M Cost for the Year	$ 2,750,000	$ 4,500,000	$ 1,000,000	8,250,000
Machine Hours for the Year	25,000	31,000	80,000	136,000
Inspection Hours for the Year	-	11,000	8,000	19,000
Engineering Hours for the Year	500	500	3,000	4,000
Facility Use (Square Feet) for the Year	10,000.00	5,000.00	5,000.00	20,000.00



Projected Budgeted Overhead	Amount	Cost Pool Driver

Machine Cost Pool	$ 800,000	Machine Hours
Inspection Cost Pool	$ 550,000	Inspection Hours
Engineers Cost Pool	$ 350,000	Engineering Hours
Facility & General Cost Pool	$ 600,000	Square Footage
TOTAL BUDGETED O.H.	$ 2,300,000

Step # 1 Calculate the ABC Overhead Application Rate

Step # 2 - Assign the Direct Material Costs, Direct Labor Costs and Apply Overhead to the Actual January Results


ACTUAL RESULTS FOR JANUARY 202X:
	Product A	Product B	Product C	Totals
Units Produced	7,200	7,000	800	15,000
D.L. Hours to Produce	10,500	9,500	90	20,090
D.L. Cost	$ 90,500.00	$ 100,000.00	$ 1,900.00	$ 192,400.00
D.M Cost	$ 220,000.00	$ 350,000.00	$ 80,000.00	$ 650,000.00
Machine Hours	2,500	3,200	6,500	12,200
Inspection Hours	-	700	900	1,600
Engineering Hours	35	42	260	337
Facility Use (Square Feet)	10,000.00	6,000.00	5,000.00	21,000.00

ABC METHOD:
Step 1 - Calculate Overhead Pool Application Rates:

		Product A	Product B	Product C	Totals
Units To Be Produced for the Year		75,000	80,000	8,000	163,000
D.L. Hours to Produce for the Year		119800	120000	1,200	241,000
D.L. Cost for the Year		$ 1,237,500	$ 1,320,000	$ 19,200	2,576,700
D.M Cost for the Year		$ 2,775,000	$ 4,560,000	$ 1,096,000	8,431,000
Machine Hours for the Year		25,000	31,000	80,000	136,000
Inspection Hours for the Year		-	11,000	8,000	19,000
Engineering Hours for the Year		500	500	3,000	4,000
Facility Use (Square Feet) for the Year		10,000.00	6,000.00	5,000.00	21,000.00



Projected Budgeted Overhead		Amount	Cost Pool Driver

Machine Cost Pool		$ 800,000	Machine Hours for the Year
Inspection Cost Pool		$ 550,000	Inspection Hours for the Year
Engineers Cost Pool		$ 350,000	Engineering Hours for the Year
Facility & General Cost Pool		$ 600,000	Square Footage for the Year
TOTAL BUDGETED O.H.		$ 2,300,000



Machine Cost Pool			Application Rates
TOTAL MACHINE COST
TOTAL MACHINE HOURS			0
Inspection Cost Pool
TOTAL INSP COST
TOTAL INSP HOURS			0
Engineering Cost Pool
TOTAL ENGINEERING COST
TOTAL ENGINEERING HOURS			0
Facility Cost Pool
FACILITIES & GEN COST				Convert Yearly Rate to Monthly/12
TOTAL SQ FT			0	0	Per Month


Step 2 - Assign Direct Costs and Apply Overhead to Actual Results
ACTUAL RESULTS FOR JANUARY 202X:
		Product A	Product B	Product C	Totals
Units Produced		7,200	7,000	800	15,000
D.L. Hours to Produce		10,500	9,500	90	20,090
D.L. Cost		$ 90,500.00	$ 100,000.00	$ 1,900.00	$ 192,400.00
D.M Cost		$ 220,000.00	$ 350,000.00	$ 80,000.00	$ 650,000.00
Machine Hours		2,500	3,200	6,500	12,200
Inspection Hours		-	700	900	1,600
Engineering Hours		35	42	260	337
Facility Use (Square Feet)		10,000.00	6,000.00	5,000.00	21,000.00



	OH Rate	Product A	Product B	Product C
D.L. Cost
D.M Cost
Machine Applied OH	0
Inspection Applied OH	0
Engineers Applied OH	0
Facility & General Applied Overhead	0
TOTAL COST
Units Produced

Per Unit Cost

Our Target Price(130% of cost)		$ -	$ -	$ -
Competitor's Price		$ 73.00	$ 98.00	$ 195.00


What We Have Learned:

Traditonal Method		Product A	Product B	Product C
Cost Per Unit (Traditional Method)		$ -	$ -	$ -
Target Price Per Unit (Traditional Method)	$ -	$ -	$ -
Competitior Price Per Unit		$ 73.00	$ 98.00	$ 195.00
ABC Method
Cost Per Unit (ABC Method)		$ -	$ -	$ -
Target Price Per Unit (ABC Method)		$ -	$ -	$ -
Competitor's Price		$ 73.00	$ 98.00	$ 195.00

1.Using a Traditional Costing method to allocate overhead, what is the per unit cost you calculated for Product A, Product B and Product C?

2. Using an Activity Based Costing method to allocate overhead, what is the per unit cost you calculated for Product A, Product B and Product C?

3. Based on your analysis, the results could be described best by the following statement :

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