Chapter C, Problem 5QS

To determine

1. Introduction:

Activity Based Costing

• Activity Based Costing is a method of cost allocation, whereby costs are assigned to activities performed and cost per unit of activity driver is calculated and assigned to units of activities performed.

• Activity drivers could be cost allocation units such as orders, batches, area occupied etc. Activity based costing favors cost allocation on the actual units of activity carried out as opposed to the standard method of overhead application using a blanket rate.

  $\text{Cost of Activity = Units of Activity performed x Cost per Activity Driver}$

Overhead cost per unit for the standard units

To determine

2. Introduction:

Activity Based Costing

• Activity Based Costing is a method of cost allocation, whereby costs are assigned to activities performed and cost per unit of activity driver is calculated and assigned to units of activities performed.

• Activity drivers could be cost allocation units such as orders, batches, area occupied etc. Activity based costing favors cost allocation on the actual units of activity carried out as opposed to the standard method of overhead application using a blanket rate.

  $\text{Cost of Activity = Units of Activity performed x Cost per Activity Driver}$

Overhead cost per unit for the deluxe units