STRATEGIC COST MANAGEMENT:

ACTIVITY-BASED COSTING

Submitted by:

Hannah V. Yap

ACC 213 – Strategic Cost Management

(305)

Submitted to:

Myra T. Miraflores, CPA, MSA

Professor

September 13, 2023

Let’s Analyze

Activity 1. Now, it’s your turn to apply activity-based costing. Read each problem carefully and
provide what is required.

Problem 1 (adapted)

Kai Corp. manufactures two models of beds, the standard and the deluxe model. The
following activity and cost information has been compiled:

Standard Deluxe OH Costs

No. of setups 9 21 P90,000
No. of components 90 150 210,000
No. of DLH 650 150 -

Required:

Compute the total amount of overhead costs assigned to each model using:

1. Traditional costing system

Computation for Overhead Rate under Traditional Costing System

No. of setups Given:

1. Budgeted FOH = P90,000
2. No. of DLH – Standard = 650
3. No. of DLH – Deluxe = 150

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 =
𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
𝑃90,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 650 +150
𝑃90,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 800
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟏𝟏𝟐. 𝟓/𝑫𝑳𝑯
No. of components Given:
1. Budgeted FOH = P210,000
2. No. of DLH – Standard = 650
 3. No. of DLH – Deluxe = 150

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
FOH 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
FOH 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
𝑃210,000
FOH 𝑅𝑎𝑡𝑒 = 650 +150
𝑃210,000
FOH 𝑅𝑎𝑡𝑒 = 800
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟐𝟔𝟐. 𝟓/𝑫𝑳𝑯

Base Standard Deluxe

No. of Given: Given:
setups 1. OH Rate = 112.5/DLH 1. OH Rate = 112.5/DLH
2. No. of DLH = 650 2. No. of DLH = 150
Formula: Formula:
𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 650 𝑥 112.5/𝐷𝐿𝐻 𝐹𝑂𝐻 = 150 𝑥 112.5/𝐷𝐿𝐻
𝑭𝑶𝑯 = 𝟕𝟑, 𝟏𝟐𝟓 𝑭𝑶𝑯 = 𝟏𝟔, 𝟖𝟕𝟓
No. of Given: Given:
components 1. OH Rate = 262.5/DLH 1. OH Rate = 262.5/DLH
2. No. of DLH = 650 2. No. of DLH = 150
Formula: Formula:
𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑁𝑜. 𝑜𝑓 𝐷𝐿𝐻 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 650 𝑥 262.5/𝐷𝐿𝐻 𝐹𝑂𝐻 = 150 𝑥 262.5/𝐷𝐿𝐻
𝑭𝑶𝑯 = 𝟏𝟕𝟎, 𝟔𝟐𝟓 𝑭𝑶𝑯 = 𝟑𝟗, 𝟑𝟕𝟓
Total FOH TFAStandard = 73,125 + 170,625 = 243,750 TFADeluxe= 16,875 + 39,375 = 56,250
Allocated

2. Activity-based costing system

Computation for Overhead Rate under Activity-based Costing System

No. of setups Given:

1. Budgeted FOH = P90,000
2. No. of setups – Standard = 9
3. No. of setups – Deluxe = 21
Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
 Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
𝑃90,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 9 +21
𝑃90,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 30
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟑, 𝟎𝟎𝟎/𝒔𝒆𝒕𝒖𝒑𝒔
No. of components Given:
1. Budgeted FOH = P210,000
2. No. of components – Standard = 90
3. No. of components – Deluxe = 150

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
FOH 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
𝑃210,000
FOH 𝑅𝑎𝑡𝑒 = 90 +150
𝑃210,000
FOH 𝑅𝑎𝑡𝑒 = 240
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟖𝟕𝟓/𝒄𝒐𝒎𝒑𝒐𝒏𝒆𝒏𝒕𝒔

Base Standard Deluxe

No. of Given: Given:
setups 1. FOH Rate = 3,000/setups 1. FOH Rate = 3,000/setups
2. No. of setups – Standard = 9 2. No. of setups – Deluxe = 21
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑜. 𝑜𝑓 𝑠𝑒𝑡𝑢𝑝𝑠𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑜. 𝑜𝑓 𝑠𝑒𝑡𝑢𝑝𝑠𝐷𝑒𝑙𝑢𝑥𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑜. 𝑜𝑓 𝑠𝑒𝑡𝑢𝑝𝑠𝑠𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑜. 𝑜𝑓 𝑠𝑒𝑡𝑢𝑝𝑠𝐷𝑒𝑙𝑢𝑥𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 9 𝑥 3,000/𝑠𝑒𝑡𝑢𝑝𝑠 𝐹𝑂𝐻 = 21 𝑥 3,000/𝑠𝑒𝑡𝑢𝑝𝑠
𝑭𝑶𝑯 = 𝟐𝟕, 𝟎𝟎𝟎 𝑭𝑶𝑯 = 𝟔𝟑, 𝟎𝟎𝟎
No. of Given: Given:
components 1. OH Rate = 875/components 1. OH Rate = 875/components
2. No. of components – Standard = 90 2. No. of components – Deluxe = 150
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑜. 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑜. 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠𝐷𝑒𝑙𝑢𝑥𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑜. 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑜. 𝑜𝑓 𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠𝐷𝑒𝑙𝑢𝑥𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 90 𝑥 875/𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠 𝐹𝑂𝐻 = 150 𝑥 875/𝑐𝑜𝑚𝑝𝑜𝑛𝑒𝑛𝑡𝑠
𝑭𝑶𝑯 = 𝟕𝟖, 𝟕𝟓𝟎 𝑭𝑶𝑯 = 𝟏𝟑𝟏, 𝟐𝟓𝟎
Total FOH TFAStandard = 27,000 + 78,750 = 105,750 TFADeluxe= 63,000 + 131,250 = 194,250
Allocated

3. Discuss the effects of the difference in the computed amounts of overhead costs.

Traditional Costing System vs Activity-based Costing System

Standard Deluxe
Difference in 243,750 – 105,750 = 138,000 56,250 – 194,250 = (138,000)
computation
Effects Unit Cost (FOH) = OVERSTATED Unit Cost (FOH) = UNDERSTATED
Profit = UNDERSTATED Profit = OVERSTATED

The computation of overhead costs under Traditional Costing System differs from the
Activity-based Costing System. Shown in the table above, an overstatement of 138,000 in terms
of unit cost and an understatement of 138,000 in terms of profit is derived under Traditional
Costing System. On the other hand, an understatement of 138,00 in terms of unit cost and an
overstatement of 138,000 in terms of profit is derived under Activity-based Costing System.
From here on, we can draw an insight that there is an inverse relationship between the unit cost
and profit in both costing systems. As a result, the allocated overhead cost for Standard is higher
than Deluxe while the allocated overhead cost for Deluxe is lower than Standard.

Problem 2 (adapted)

Aguila Company has two major segments with the following information:

Skyscraper Ground Zero Total

Annual Revenue P200,000 P600,000 P800,000
Annual Salesperson P30,000 P45,000 P75,000
Salaries
Number of 50 75 125
Customers
Miles Driven 80,000 40,000 120,000

The business also has overhead costs as follows:

Cost Pool Cost in Pool Cost Driver

Travel P36,000 Miles driven
Entertainment P144,000 Number of
customers
Administrative P150,000 Salaries
 TOTAL P330,000

Required:

1. Allocate the overhead costs to the segments based on sales revenue.

Travel (Miles driven) Given:

1. Budgeted FOH = P36,000
2. Sales Revenue – Skyscraper = P200,000
3. Sales Revenue – Ground Zero = P600,000

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑃36,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃200,000+𝑃600,000
𝑃36,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃800,000
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 =
𝟎. 𝟎𝟒𝟓 𝒐𝒓 𝟒. 𝟓% 𝒐𝒇 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆
Entertainment (No. of Given:
customers) 1. Budgeted FOH = P144,000
2. Sales Revenue – Skyscraper = P200,000
3. Sales Revenue – Ground Zero = P600,000

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑃144,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃200,000+𝑃600,000
𝑃144,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃800,000
𝑶𝑯 𝑹𝒂𝒕𝒆 =
𝟎. 𝟏𝟖 𝒐𝒓 𝟏𝟖% 𝒐𝒇 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆
Administrative (salaries) Given:
1. Budgeted FOH = P150,000
2. Sales Revenue – Skyscraper = P200,000
3. Sales Revenue – Ground Zero = P600,000

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑇𝑟𝑎𝑑𝑖𝑡𝑖𝑜𝑛𝑎𝑙 𝐵𝑎𝑠𝑒
Solution:
 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑆𝑎𝑙𝑒𝑠 𝑅𝑒𝑣𝑒𝑛𝑢𝑒
𝑃150,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃200,000+𝑃600,000
𝑃150,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃800,000
𝑶𝑯 𝑹𝒂𝒕𝒆 =
𝟎. 𝟏𝟖𝟕𝟓 𝒐𝒓 𝟏𝟖. 𝟕𝟓% 𝒐𝒇 𝑺𝒂𝒍𝒆𝒔 𝑹𝒆𝒗𝒆𝒏𝒖𝒆

Base Skyscraper Ground Zero

Travel (miles Given: Given:
driven) 1. OH Rate = 4.5% of Sales 1. OH Rate = 4.5% of Sales
Revenue Revenue
2. Annual Revenue = P200,000 2. Annual Revenue = P600,000
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 𝑃200,000 𝑥 4.5% 𝐹𝑂𝐻 = 𝑃600,000 𝑥 4.5%
𝑭𝑶𝑯 = 𝟗, 𝟎𝟎𝟎 𝑭𝑶𝑯 = 𝟐𝟕, 𝟎𝟎𝟎
Entertainment Given: Given:
(number of 1. OH Rate = 18% of Sales Revenue 1. OH Rate = 18% of Sales Revenue
customers) 2. Annual Revenue = P200,000 2. Annual Revenue = P600,000
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 𝑃200,000 𝑥 18% 𝐹𝑂𝐻 = 𝑃600,000 𝑥 18%
𝑭𝑶𝑯 = 𝟑𝟔, 𝟎𝟎𝟎 𝑭𝑶𝑯 = 𝟏𝟎𝟖, 𝟎𝟎𝟎
Administrative Given: Given:
(salaries) 1. OH Rate = 18.75% of Sales 1. OH Rate = 18.75% of Sales
Revenue Revenue
2. Annual Revenue = P200,000 2. Annual Revenue = P600,000
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐴𝑛𝑛𝑢𝑎𝑙 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 𝑃200,000 𝑥 18.75% 𝐹𝑂𝐻 = 𝑃600,000 𝑥 18.75%
𝑭𝑶𝑯 = 𝟑𝟕, 𝟓𝟎𝟎 𝑭𝑶𝑯 = 𝟏𝟏𝟐, 𝟓𝟎𝟎
Total FOH TFASkyscraper = 9,000 + 36,000 + 37,500 = TFAGround Zero = 27,000 +108,000 +
Allocated 82,500 112,500 = 247,500

2. Determine the income of each segment.

Skyscraper Ground Zero

Sales P200,000 P600,000
Less: Cost
Travel (9,000) (27,000)
Entertainment (36,000) (108,000)
Administrative (37,500) (112,500)
Income 117,500 362,500

3. Allocate the overhead costs to the segments using ABC.

Travel (Miles driven) Given:

1. Budgeted FOH = P36,000
2. Miles Driven – Skyscraper = 80,000
3. Miles Driven – Ground Zero = 40,000
Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑀𝑖𝑙𝑒𝑠 𝐷𝑟𝑖𝑣𝑒𝑛
𝑃36,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃80,000+𝑃40,000
𝑃36,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃120,000
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟎. 𝟑 𝒐𝒓 𝟑𝟎%
Entertainment (No. of Given:
customers) 1. Budgeted FOH = P144,000
2. Number of Customers – Skyscraper = 50
3. Number of Customers – Ground Zero = 75

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠
𝑃144,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 50+75
𝑃144,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃125
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟏, 𝟏𝟓𝟐
Administrative (salaries) Given:
4. Budgeted FOH = P150,000
 5. Salaries – Skyscraper = P30,000
6. Salaries – Ground Zero = P45,000

Formula:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
FO𝐻 𝑅𝑎𝑡𝑒 = 𝐶𝑜𝑠𝑡 𝐷𝑟𝑖𝑣𝑒𝑟
Solution:
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝐹𝑂𝐻
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠
𝑃150,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃30,000+𝑃45,000
𝑃150,000
𝐹𝑂𝐻 𝑅𝑎𝑡𝑒 = 𝑃75,000
𝑭𝑶𝑯 𝑹𝒂𝒕𝒆 = 𝟐

Base Skyscraper Ground Zero

Travel (miles Given: Given:
driven) 1. OH Rate = 30% 1. OH Rate = 30%
2. Miles Driven = 80,000 2. Miles Driven = 40,000
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑀𝑖𝑙𝑒𝑠 𝐷𝑟𝑖𝑣𝑒𝑛 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑀𝑖𝑙𝑒𝑠 𝐷𝑟𝑖𝑣𝑒𝑛 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑀𝑖𝑙𝑒𝑠 𝐷𝑟𝑖𝑣𝑒𝑛 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑀𝑖𝑙𝑒𝑠 𝐷𝑟𝑖𝑣𝑒𝑛 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 80,000 𝑥 30% 𝐹𝑂𝐻 = 40,000 𝑥 30%
𝑭𝑶𝑯 = 𝟐𝟒, 𝟎𝟎𝟎 𝑭𝑶𝑯 = 𝟏𝟐, 𝟎𝟎𝟎
Entertainment Given: Given:
(number of 1. OH Rate = 1,152 1. OH Rate = 1,152
customers) 2. Number of Customers = 50 2. Number of Customers = 75
Formula: Formula:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝐹𝑂𝐻 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐶𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 50 𝑥 1,152 𝐹𝑂𝐻 = 75 𝑥 1,152
𝑭𝑶𝑯 = 𝟓𝟕, 𝟔𝟎𝟎 𝑭𝑶𝑯 = 𝟖𝟔, 𝟒𝟎𝟎
Administrative Given: Given:
(salaries) 1. OH Rate = 2 1. OH Rate = 2
2. Salaries = P30,000 2. Salaries = P45,000
Formula: Formula:
𝐹𝑂𝐻 = 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
Solution: Solution:
𝐹𝑂𝐻 = 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒 𝐹𝑂𝐻 = 𝑆𝑎𝑙𝑎𝑟𝑖𝑒𝑠 𝑥 𝑂𝐻 𝑟𝑎𝑡𝑒
𝐹𝑂𝐻 = 𝑃30,000 𝑥 2 𝐹𝑂𝐻 = 𝑃45,000 𝑥 2
𝑭𝑶𝑯 = 𝟔𝟎, 𝟎𝟎𝟎 𝑭𝑶𝑯 = 𝟗𝟎, 𝟎𝟎𝟎
Total FOH TFASkyscraper = 24,000 + 57,600 + 60,000 TFAGround Zero = 12,000 + 86,400 + 90,000
Allocated = 141,600 = 188,400

3. Determine the income of each segment under ABC.

Skyscraper Ground Zero

Sales (200,000 + P800,000 P600,000
600,000)
Less: Cost
Travel (24,000) (12,000)
Entertainment (57,600) (86,400)
Administrative (60,000) (90,000)
Income 658,400 411,600