Table 12.4

(Home assignment #1 based on the Richards book, Chapter 12, "Warehouse Costs.) Exercise 3. Activity-based vs. traditional costing Please use table 12.4 on page 355 of the Richards book for this exercise. Assume that it represents an accurate picture of costs in the warehouse by customer based on activities. Now let's compare it to traditional costing. 8. If under traditional costing all management overhead A were allocated only to storage space (number of pallets) and not to handling cost drivers (labor and MHE), which customer would be getting the most "free ride" (the highest number of free, unpaid management hours)? 9. How many free management hours would that customer get? 10. Which customer would be the most disadvantaged (the highest number of paid unused management hours)? 11. How many management hours would that customer pay for and not use? TABLE 124 Example ABC model Space Labour MHE (no of (no of No. of Administration Management BOther pallets) hours) hours hours 10,000 120,000 30,000 10,000 hours 20,000 hours 100% pallets hours hours 2,000 20,000 5,000 Overhead A Overhead hours costs Total capacity CustomerA Customer B Customer C Customer D Customer E Customer F 500 200 200 100 1000 1,400 25000 8,000 2,000 900 18,000 4500 2,500 2,300 21800 3,000 1500 1,000 12,000 1900 1,000 1500 18000 5000 1,000 1,000 2,000 3,500 5,000 1,000 500 4,000 5% 10% 20% 25% 15% 10% leeway/unproductive hours Unused capacity 700 5000 2,500 500 3,000 15% Thg-above hours can be further broken down into the individual activities within the warehouse and the costs allocated by customer. These costs can then be compared to the actual charges levied to the customer and any shortfall examined. We can also calculate the total handling and storage cost per