Build a small ABC model
Calculate an ABC allocation using activity pools, driver rates, and driver consumption.
Support overhead is $180,000. Setup pool is $120,000 with 300 setups. Inspection pool is $60,000 with 1,000 inspection hours. The custom product uses 90 setups and 260 inspection hours. Activity cost pool / total driver quantity = driver rate; driver rate x product driver usage = assigned activity cost. Do not allocate the activity pool by labor hours just because labor hours are already in the ERP. The point is to follow the activity. Step 1 Setup driver rate = $120,000 / 300 setups = $400 per setup. The setup pool follows setup count. Step 2 Inspection driver rate =…
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