a cost system refinement

1

• a cost system refinement
• more overhead cost pools

2
Typical Cost Driver

• Unit-level costs
• utilities, depreciation

Volume measure

• Batch-level costs
• set-up, order processing

of batches

• Product-sustaining costs
• engineering, design

Complexity measure

• Facility-sustaining costs

Volume measure
3
Cost Pools

• How many cost pools?
• cost / benefit
• Homogeneous pools
• share a common allocation base

ABC is most valuable when

• Overhead costs are high.
• especially batch-level costs
• Products are diverse.
• processing / complexity
• batch size
• Costs affect pricing and product mix decisions.

4
Product X
Product Y
DM
DL
Overhead
1 DLH

1 DLH

Total
5
Driver
Rate
1,500 set-ups
50,000 mh
2,000 inspect
6
Allocate Overhead to Individual Jobs
Product X
Product Y
DM
DL
Set-ups
1/50

1/5

Machining
1.2 mh

4 mh

Inspections
1/50

2/5

Total
Compare to traditional costing