a. Using ABC techniquest, determine the allocation rate for each activity. b. No

Question

a. Using ABC techniquest, determine the allocation rate for each activity.

b. Now , using this allocation estimate the total cost of performing each test.

c. Verify the total annual costs aggregated from individual test costs equal the total annual costs of the laboratory given the data above.

activity    annual costs   cost driver    test a     test b test c   test d

recieve specimen $10,000 no. of tests 2,000 1,500 1,000 500

set up equipment 25,000 no. of mins. per test 5 5 10 10

reun test 100,000 no. of mins. per test 1 5 10 20

record results 10,000 no. of mins. per test 2 2 2 4

transmit results 5,000 no. of mins. per test 3 3 3 3

total costs $150,000

Explanation / Answer

Activity based costing (Activity base costing, ABC) is a method for assigning costs to products, services, projects, tasks, or acquisitions, based on (1) the activities that go into them and (2) the resources consumed by these activities. ABC contrasts with traditional costing (traditional cost accounting), which sometimes assigns costs using somewhat arbitrary allocation percentages for overhead costs or the so-called indirect costs. Activity based management (ABM) is an approach to management that uses activity based costing for decision support and planning. for more refer to below link http://www.business-case-analysis.com/activity-based-costing.html

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