Fontillas Instrument, Inc.

Expected Use of Cost Drivers per Activity 1,000 500 600

Activity Cost Pools

Material Handling Machine Setups Quality Inspections

Estimated Overhead $35,000 $27,500 $27,000

= = = =

Activity-based Overhead Rates $35 $55 $45

Fontillas Instrument
Instruments
Expected Use of Cost Drivers per Product 400 200 200 x ActivityBased Overhead Rates $35 $55 $45 = Expected Use of Cost Drivers per Product 600 300 400

Activity Cost Pools Materials Handling Machine Setups Quality Inspections Total Assigned Costs

Cost Assigned $14,000 $11,000 $9,000 $34,000

Gauges ActivityBased Overhead Rates $35 $55 $45

Cost Assigned $21,000 $16,500 $18,000 $55,500

Memorandum To: President, Fontillas Instrument, Inc. From: Veronica Gutierrez Re: Benefits of activity-based costing (ABC) Activity-based costing (ABC) is a method for distributing overhead costs. It basically distributes overhead cost to m them to products by the cost drivers. The main benefit of ABC is that it has a more precise product costing. It leads t are then used to assign overhead costs. ABC will push to enhance control over overhead costs. It will also push to be

distributes overhead cost to many activity cost pools and assigns ecise product costing. It leads to more cost pools. The cost pools ead costs. It will also push to better the decisions of management.