Using ABC

　　A review of the incidence of costs has established that the number of setups is the driver of the fixed production costs. Using ABC the fixed production costs would be allocated as follows:

　　No. of setups per 1,000 units81.6

　　Budgeted setups16824

　　Cost per setup$2,000

　　Fixed overheads allocated$32,000$16,000

　　This difference in costing could have significant implications for pricing, especially if a cost-based approach is used for profit calculation. These, and other implications are discussed in more detail below.

　　Activity-based costing could provide much more meaningful information about product costs and profits when:

　　§ indirect costs are high relative to direct costs

　　§ products or services are complex

　　§ products or services are tailored to customer specifications

　　§ some products are sold in large numbers and others in small numbers.

　　1.3 Identifying appropriate cost drivers under ABC