Work out activity based costing instantly with clear inputs, formula shown and shareable results.
Activity-based costing traces overhead through the activities that cause it. Divide the cost pool by total driver units to get a driver rate, apply it to the driver units the product consumes, then divide by output to get a per-unit cost that reflects real complexity rather than volume.
Cost driver rate
Rate = Activity cost pool / Total driver units
Allocated cost
Allocated = Rate x Driver units consumed
Something that genuinely causes the cost and is already measured: setups, purchase orders, inspections, machine hours, deliveries.
Because low-volume, high-complexity products consume disproportionate setups and handling. Volume-based absorption hides that subsidy.