1. Zeta Automotive

Scenario: Activity-Based Costing (ABC) Analysis

Data: Zeta Automotive manufactures automotive components and uses ABC to allocate overhead costs. The company reported the following data for the year 2023:

• Total Overhead Costs: $2,000,000
• Activity Cost Pools:
  • Order Processing: $500,000
  • Machine Setup: $600,000
  • Product Testing: $900,000

• Cost Drivers:
  • Number of Orders Processed: 5,000
  • Number of Machine Setups: 1,000
  • Hours of Product Testing: 10,000

Requirements: Allocate overhead costs to Zeta Automotive's products using the ABC method based on each cost driver. Calculate the overhead cost per unit for a specific product line. Analyze the cost behavior observed in each activity cost pool. Discuss the advantages of ABC for Zeta Automotive in improving cost accuracy and decision-making. Evaluate the effectiveness of ABC in identifying and reducing non-value-added activities. Recommend strategies for Zeta Automotive to optimize its cost management using ABC principles.