3-Minute Overview
Part 1 (Details of Video’s Example are at Bottom of This Page)
Part 2
Activity Based Costing Exam Training – Premium Video (Free Preview)
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Detailed Problem in Video Example Above:
ABC Mobile Phone Company makes mobile phones. How much is the overhead cost of each phone of each Phone Model (both Model-A and Model-B)?
Ex. Mobile Phone Company, 1 Year of Data
*1 year is only an example. It can be a different time period in other problems. But let’s just use 1 year to keep it simple for this easy example.
Phones Manufactured in 1 year:
1. PDA-phones manufactured in 1 year: 3,000 phones
2. Simple-phones manufactured in 1 year: 7,000 phones
Total Phones Manufactured in 1 year (PDA Phones + Simple Phones): 10,000 phones
Overhead Cost in 1 year:
1.Machine Maintenance Costs: $400,000
2. Quality Control Costs: $600,000
Total Overhead of Firm (Machine Maintenance + Quality Control): $1,000,000
*To keep it simple, we have only 2 types of overhead in this example. In other problems, there can be more types of overhead, such as rent, electricity, and more…
Quantity of EACH Overhead Type:
Number of Machine Hours Used: 10,000 hours
* The number of “machine hours” is the way we will count or measure how much machine maintenance we did. We need to know this because machine maintenance is part of the overhead.
Quality Inspections: 1,000 inspections
* The number of “quality inspections” is the way we will count or measure how much quality control we did. We need to know this because quality control is part of the overhead.
Quantity of EACH type of Overhead Used by EACH type of Phone:
PDA-Phones: 5,500 Machine Hours and 650 Quality Inspections
Simple-Phones: 4,500 Machine Hours and 350 Quality Inspections
16 Comments
Zaki Eldin
25 February 2012Thank you very much for the most valuable and fruitful stuff that furnish us with
Kimberley
10 May 2012You are an amazing teacher. I have been struggling with ABC costing and you clarified it. Thank you so much.
David
12 May 2012Glad you’re finally winning your struggle!
Chisty
8 April 2014You are simply awesome and excellent 🙂
Zaki Eldin
12 May 2012I know your going slow for the really stupid people among us but most of the time you spend way to much time on parts that are easy to understand.
David
12 May 2012Well, I’m one of the really stupid people among us LOL!
gerald
14 July 2012thank you for helping me understand this stuff
David
15 July 2012Great it was of help, Gerald!
Dennis
27 June 2013Thank you very much for your simply way of explaination..
David
15 July 2013@Dennis I think simple is always best, you’re very welcom
Chamila Prasanga
14 December 2015It was very very useful for me.
Thank you very much..
Thank You.
David
24 December 2015@Chamila you’re very welcome
anand vaze
26 January 2016very very nice
David
28 January 2016@anand very very thanks!
ALI FARID
22 April 2016Sir,
Thank you so much for not only teaching in a very easy and understandable way but also for encouraging people like me to move on in studies.
Regards,
David
23 April 2016@Ali glad you find the encouragement!
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