Glaser Health Products

Welcome to Week 3!  This week we cover Activity-Based Costing in the text.

Importance of ABC for Decision Making

o Used in Pricing and Product Mix Decisions 

o Used in conjunction with value engineering to help cut costs

ABC results in more calculations, but is always a four step process:  identify each activity and estimate total indirect cost – identify a cost driver and total quantity for each activity – compute the allocation rate for each activity (step 1 / step 2) – allocate indirect costs to the cost object.

Four steps to develop an Activity Based Costing (ABC) system, which focuses on the activities as the

fundamental cost objects

o Identify each activity and estimate its total indirect cost.

o Identify the cost driver for each activity and estimate the total quantity of each driver’s allocation base.

o Compute the cost allocation rate for each activity. 

Cost allocation rate = Estimated total indirect cost (step 1) /Estimated total quantity of the allocation base (step 2)

 o Allocate indirect costs to the cost object

Allocated activity cost = Cost allocation rate X Actual quantity of the allocation base (step 3) 

Please use the following format for the Week 3 Assignment: 

One of the more interesting stops in my career was as an internal auditor.  As an internal auditor you spend a great deal of time working throughout a company and it often results in you becoming very valuable to your company.  As part of my time as an internal auditor I obtained the certified internal auditor designation offered by the Institute of Internal Auditors.  Below is a link the IIA and CIA exam: