ABC

ABC

1. calculate

   • 1. identify appropriate cost drives
     • Product (unit level)
       • Production volume
         • Machine power
         • Labour
         • Materials
     • Batch level
       • No of batches
         • Setup costs
         • Quality control
     • Product sustaining
       • No and diversity of products
         • Product management (e.g. marketing, design)
     • Facility sustaining
       • The fact that the business exists
         • Rent & rates
         • Building maintenance
   • 2. calculate costs per driver & per unit

2. Comparison to traditional methods

3. Traditional methods

   • Absorption costing
     • Most overhead costs were assumed to be incurred at product level
       • Absorbing overheads based on production volume was very relevant