| Activity | Activity Cost Driver | Total Driver Quantity (Annual) | |----------|----------------------|-------------------------------| | Machine operation | Machine hours | 50,000 hours | | Setup | Number of setups | 1,200 setups | | Quality inspection | Number of inspections | 2,500 inspections | | Material handling | Number of material moves | 15,000 moves | We compute the rate per unit of activity cost driver.
= $1,000,000 / 50,000 machine hours = $20 per machine hour cost driver analysis example
| Activity Driver | Standard Chairs | Custom Tables | Total | |----------------|----------------|---------------|-------| | Machine hours | 40,000 | 10,000 | 50,000 | | Number of setups | 200 | 1,000 | 1,200 | | Number of inspections | 500 | 2,000 | 2,500 | | Number of moves | 5,000 | 10,000 | 15,000 | | Activity | Activity Cost Driver | Total
These costs are traced directly using actual resource consumption records (e.g., maintenance logs, payroll records for setup workers, move tickets). We now select drivers that link each activity’s cost to the two product lines. | Product | Traditional Overhead | ABC Overhead
| Product | Traditional Overhead | ABC Overhead | Difference | |---------|---------------------|--------------|------------| | Standard chairs | 80,000 × $24 = $1,920,000 | $1,100,000 | Overcosted by $820,000 | | Custom tables | 20,000 × $24 = $480,000 | $1,300,000 | Undercosted by $820,000 |
