ABC example

In this lesson

1. 0:00 ABC Example Introduction
2. 1:01 ABC Methodology and Steps
3. 2:05 Identifying Cost Drivers
4. 2:48 Calculating Overhead Absorption Rates
5. 3:48 Allocating Overhead to Product Y
6. 4:49 Computing Overhead Cost Per Unit

About this lesson

The video walks through a practical scenario where a company manufactures two products and uses ABC to allocate overheads based on actual cost drivers—production runs, inspections, and labour hours—rather than a single absorption rate. You'll work through the four-step ABC methodology: identifying cost pools and their drivers, calculating overhead absorption rates for each driver, determining total overhead costs for the product, and finally computing the cost per unit. This approach is essential for PM and Management Accounting papers, where ABC questions frequently appear in both objective tests and case studies, helping you understand how different activities consume resources differently. The example demonstrates why ABC matters in practice: it provides more accurate costing than traditional methods, particularly when products require significantly different levels of support activities. By the end, you'll be confident allocating overheads correctly and presenting your workings clearly for exam success.

Duration: 5m