Managerial – ABC – Sept 28

ABC – 7 steps

1) Identiffy different activities (cost pools)2) Determine basis for assigning the cost of activities to cost objects> cost driver

- They have now got a new automated system for ordering , easier and less labour intensive- Shipping system and excellent customer service. Expensive to bring to desk

o Charging 2% for desk delivery, may or may not cover expenses- Cost driver – logical and quantifiable link between activities performed

Warehousing costs

- Cost driver would be # of cartons

Individual costs

Process manual orders

- # of items per order, or # of orders

Process EDI (electronic order)

- # of orders

Commercial delivery

- # of cartons shipped

Desk top deliveries

- # of deliveries

3) Assign total estimated costs or resources to each activity poolExhibit 1OH :Warehouse personal 2.4MWarehouse expenses 2MFreight: .45MDelivery Truck Expenses: .2MOrder entry expenses: .8MTotal OH = 5.85MWe are trying to better allocate these numbers10% of 2.4M was for desktop delivery, then plus .2M for delivery expenses

4) Determine the practicle calacity for the cost driver base (the denominator)