A CTIVITY- B ASED C OSTING. EXAMPLES OF AN ACTIVITY Ordering of Raw Materials Materials Handling (Disbursement of Materials from Inventory to Production) Usage of a Machine Technical Phone Support for Customers WHAT IS ABC?
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WHAT IS AN ACTIVITY COST POOL?
To use ABC, we must assign to each activity an activity cost pool. An activity’s cost pool is the annual cost associated with that activity.
WHAT IS AN ACTIVITY DRIVER?
To use ABC, we must also assign to each activity an activity driver. An activity’s driver is the most reasonable way to measure a product’s “fair-share” usage of the activity.
See the next page for a driver for Technical Phone Support for Customers.
For each of the other three activities at the top of previous slide, what should be the activity driver?
Ordering of Raw Materials? Activity Driver is _______________
Materials Handling? Activity Driver is _______________
Usage of a Machine? Activity Driver is _______________
Two products: Thing-a-Mabobs (T) and Widgets (W)
Activity: Technical Phone Support for Customers (Tech Support)
Tech Support’s activity cost pool is $1,000,000.
Tech Support’s activity driver is the number of phone calls.