Overheads Activities Workload

Receivingg Order
(Receiving each Comp.
Once per run)

5(4%)

18(15%)

100(81%)

Packing Orders(One

1(4%)

5(19%)

20(77%)

Engineering workload 25%

35%

40%

Pack. Order per shipment)

(Subjective- assessment of
long-run trends in number of
engineering orders for
each product)

The ABC Approach

Raw Material
Direct Labour
Set-up Labour
Machine Overhead
Receiving
g
g
Engineering
Packing
Total

A($)

20.00
10.00
.02
17.50
1.20
12.50
.80
62.02

B($)

30.00
6.67
.04
23.33
3.00
11.67
2.53
77.24

C($)

10.00
5.00
.44
35.00
48.60
40.00
30.80
169.84

Comparison of Costing Systems

Cost Per Unit
A
B

Volume-based system
Conventional
$105 70
$105.70
$87 16 $52.85
$87.16
$52 85
Modern
73.62
96.28
89.74
ABC
62 02
62.02
77.24
77 24 169.84
169 84
Selling Price
162.61
125.96 *121.55
* After
Af the
h last
l roundd off further
f h price
i increase
i

Comparison-Profitability Per unit

A

$56.91
35%

$38.80
31%

$68.70
57%

$88.99
55%

$29.68
24%

$31.81
26%

$100.59
62%

$48.72 ( $48.29)
39% Negative

Conventional System
Profit/unit
Gross Margin

Modern System
Profit/unit
Gross Margin

ABC System
Profit/unit
Gross Margin