Using ABC
A review of the incidence of costs has established that the number of setups is the driver of the fixed production costs. Using ABC the fixed production costs would be allocated as follows:
No. of setups per 1,000 units81.6
Budgeted setups16824
Cost per setup$2,000
Fixed overheads allocated$32,000$16,000
This difference in costing could have significant implications for pricing, especially if a cost-based approach is used for profit calculation. These, and other implications are discussed in more detail below.
