aetivity based eosting Return to the activity based costing example in Table 9.8 of the text. The idea here, in simplified fashion, is the production operations are served by a number of support activities. These activities have been aggregated into four eost categories, described by the noted overhead categories. (A more serious illustration would have activities serving activities, and so on.)

Take the LLAs from this illustration and determine the varlable product cost for each ofthe products. Notice the difficulty with setup eosts. It is easy to identify the ineremental eost of an additional batch of each product; but working at the product level forees you to deal with the setup eost.

Now suppose the entity allocates all variable overhead on the basis of direct labor dollars. Assume a normal volume of ql = q2 = 2,500 and

Determine the variable product eost for each of the products. Why must we specify a normal volume in this latter case? What has happened to your earHer difficulty with the setup eosts? How do you reconcile your product eosts here with their eounterparts in Table 9.9?

AppendixLO1