Question

	Basic Toaster	Deluxe Toaster
Volume	20,000 units	5,000 units
Machine Hours	1,000	2,400
Batches	315	125
Engineering Modifications	20	50
Prime Costs	$20,000	$30,000
Market Price	$25 per unit	$60 per unit

	Costs	Driver
Engineering Support	$15,900	Engineering Modifications
Electricity	25,000	Machine Hours
Setup costs	33,900	Batches

Prepare a 2-3 page memo addressed to the CFO summarizing your findings, and why you believe the activity-based costing method gives you more useful information to make decisions for the company. Include in the memo at least 4 ratios that you feel highlight your position that activity-based costing is more useful.

Answer 1

	Basic Toaster	Deluxe Toaster
Volume	20000	5000
Market price	25	60
Sales (A)	500000	300000
Prime costs	20000	30000
Engineering support	4543	11357
Electricity	7353	17647
Set up costs	24269	9631
Total Costs(B)	56165	68635
Profit (A-B)	443835	231365

ABC costing method enhances the reliabilty of cost data , gives nearly true results  and better classify the costs incurred by the company .It first assigns the costs to activities which are real cause of the overhead.