ACTIVITY-BASED COSTING

John G. Pagaddut, CPA, LPT, MSA

 LEARNING OUTCOMES

• To identify the concepts pertaining to activity

based costing (ABC)

• To solve problems regarding ABC by applying

concepts and formula applicable thereto

Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
UNDERLYING
CONCEPT
used to create

resources activities products

used to conduct

Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)

the costing method by which

costs are pooled and traced to activities

and then eventually traced to products

Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
Illustration
P 20,000 machinery

P15,000 Product
assembly
K

P10,000
inspection
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

The Gotad Company produces Product X and Y.

It provides the following information.

Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

measures X Y

direct materials 100,000 300,000 400,000

direct labor 100,000 350,000 450,000
total overhead ? ? ?
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example
(overhead)
activity activity costs

setups P120,000
material handling 60,000
power 100,000
testing 80,000
total P360,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

measures X Y

number of setups 5 25 30
number of moves 132 228 360
machine hours 20,000 180,000 200,000
number of tests 50 450 500
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

X Y

set up cost 20,000* 100,000** 120,000

*(5/30) x P120,000
**(25/30) x P120,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

X Y

material handling 22,000* 38,000** 60,000

*(132/360) x P60,000
**(228/360) x P60,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

X Y

power 10,000* 90,000** 100,000

*(20/200) x P100,000
**(180/200) x P100,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

X Y

testing 8,000* 72,000** 80,000

*(50/500) x P80,000
**(450/500) x P80,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

X Y

setup cost P20,000 100,000 120,000

material handling 22,000 38,000 60,000
power 10,000 90,000 100,000
testing 8,000 72,000 80,000
total 60,000 300,000 360,000

Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

activity product product total

measures X Y

direct materials P100,000 300,000 400,000

direct labor 100,000 350,000 450,000
overhead 60,000 300,000 360,000
total costs 260,000 950,000 1,210,000
Pagaddut,2020
 ACTIVITY-BASED COSTING (ABC)
comprehensive example

product product
X Y
total costs 260,000 950,000
÷ number of outputs 5,000 50,000

cost per unit P52 P19

Pagaddut,2020
THANK YOU.
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 ASSESSMENT TASKS
1.1.
Discuss the underlying concept in activity-based
costing.

1.2.
Explain how activity-based costing assigns costs to
product?
Pagaddut,2020
 ASSESSMENT TASKS
2.1.
Ifugao Company provides the following information.

Product 1 Product 2
number of outputs 1,500 2,200
direct materials 10,000 20,000
direct labor 8,000 16,000
overhead ? ?
Pagaddut,2020
 ASSESSMENT TASKS
2.1.

Assign the following costs to product 1 and product 2

applying ABC.
Product 1 Product 2
direct materials 10,000 20,000
direct labor 8,000 16,000
overhead ? ? Pagaddut,2020
 ASSESSMENT TASKS
2.1.

Overhead Costs
designing costs 5,000 12,000
setting up costs 6,000 15,000
inspection costs 3,500 7,500
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 ASSESSMENT TASKS
2.1.

activities product 1 product 2

designing hours 32 56
number of set-up 25 40
inspection hours 72 96
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 ASSESSMENT TASKS
2.1.

Requirements:

a. identify how much costs are to be assigned

to product 1 and product 2.

b. compute how much cost per unit of each product.

Pagaddut,2020