ABC Model

The ABC Model : The ABC Model Overhead ledger A/Cs (Resources) Rental Depreciation Equipment Security Power Water Salaries Finance charges Maintenance Materials Insurance Depreciation Buildings Activity Cost pool 2 Activity Cost Pool 3 Activity Cost Pool 4 Activity Cost pool 1 Budgeted cost $ Budgeted cost $ Budgeted cost $ Budgeted cost $ Budgeted activity units Budgeted activity units Budgeted activity units Driver Rate $/activity Driver Rate $/activity Driver Rate $/activity Plant-sustaining level Cost Object 1 Cost Object 2 Cost Object 3 Cost Object 4

Activity Cost Poolsand Cost Drivers : Activity Cost Poolsand Cost Drivers Activity Pool 1 Activity Pool 2 Activity Pool 3 Salaries $35 000 Rental 8 000 Materials 46 000 Power 97 000 Insurance 16 000 TOTAL $202 000 Salaries $95 000 Rental 6 000 Overtime 29 000 Deprec. 43 000 Mainten. 22 000 TOTAL $195 000 Salaries $45 000 Power 99 000 Materials 77 000 Deprec. 43 000 Security 51 000 TOTAL $315 000 Batches 47 B u d g e t e d C o s t D r i v e r s Set ups 33 Kilograms 1,13m Cost per batch $4 298 Cost per set-up $5 939 Cost per kg $0.28 C o s t D r i v e r R a t e s

When should ABCbe employed? : When should ABCbe employed? Overhead costs are high in relation to direct costs Overhead costs not just driven by production volume A wide range of products produced Overhead inputs vary significantly across product range Information will lead to action that will lead to profit improvement