Cost Driver Analysis Example Extra Quality -

| Activity | Resource Cost Driver | Total Annual Cost | |----------|----------------------|-------------------| | Machine operation | Machine hours | $1,000,000 | | Setup | Setup hours | $600,000 | | Quality inspection | Inspection hours | $500,000 | | Material handling | Number of material moves | $300,000 | | | | $2,400,000 |

= $500,000 / 2,500 inspections = $200 per inspection cost driver analysis example

| Product | Traditional Overhead | ABC Overhead | Difference | |---------|---------------------|--------------|------------| | Standard chairs | 80,000 × $24 = $1,920,000 | $1,100,000 | Overcosted by $820,000 | | Custom tables | 20,000 × $24 = $480,000 | $1,300,000 | Undercosted by $820,000 | | Activity | Resource Cost Driver | Total

| Activity | Activity Cost Driver | Total Driver Quantity (Annual) | |----------|----------------------|-------------------------------| | Machine operation | Machine hours | 50,000 hours | | Setup | Number of setups | 1,200 setups | | Quality inspection | Number of inspections | 2,500 inspections | | Material handling | Number of material moves | 15,000 moves | We compute the rate per unit of activity cost driver. 000 | | | | $2