= $300,000 / 15,000 moves = $20 per move Step 5: Trace Costs to Products Using Actual Driver Consumption Now we collect data on how many driver units each product line consumes annually.
| 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 |
= $1,000,000 / 50,000 machine hours = $20 per machine hour
| Activity | Resource Cost Driver | Total Annual Cost | |----------|----------------------|-------------------| | Machine operation | Machine hours | $1,000,000 | | Setup | Setup hours | $600,000 | | Quality inspection | Inspection hours | $500,000 | | Material handling | Number of material moves | $300,000 | | | | $2,400,000 |
| Activity | Description | |----------|-------------| | Machine operation | Running saws, planers, CNC routers | | Setup | Preparing machines for different products | | Quality inspection | Checking dimensions and finish | | Material handling | Moving lumber and parts to workstations | For each activity, we determine what causes resource consumption:
= $500,000 / 2,500 inspections = $200 per inspection
| 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.