Cabinets cause most setups and inspections, so they get much more overhead. Chairs get less.
Product A is overcosted (looks less profitable than it is). Product B is undercosted (looks more profitable than it is). Bad decisions follow. What is Activity-Based Costing (ABC)? Activity-Based Costing (ABC) is a costing method that assigns overhead and indirect costs to specific products or services based on the actual activities that drive those costs. activity based costing meaning
Allocate all $230k based on direct labor hours. Chairs (80% of hours) get $184k; Cabinets get $46k. Cabinets cause most setups and inspections, so they