Precision Cost Allocation in Manufacturing & Services
Traditional cost accounting applies arbitrary plant-wide overhead rates based on direct labor hours, distorting true product margins. Activity-Based Costing (ABC) assigns overhead based on actual activity consumption.
Activity Cost Pool & Driver Rate Matrix
| Activity Cost Pool | Cost Pool Total ($) | Cost Driver | Total Driver Volume | Calculated Activity Rate |
|---|---|---|---|---|
| Machine Setup | $1,200,000 | Number of Setups | 400 Setups | $3,000 / Setup |
| Quality Inspection | $600,000 | Inspection Hours | 2,000 Hours | $300 / Hour |
| Material Handling | $800,000 | Number of Requisitions | 1,600 Requisitions | $500 / Requisition |