DMART Corporation has the following six cost pools that need to be allocated to its products:...
DMART Corporation has the following six cost pools that need to be allocated to its products: Equipment maintenance cost, machinery power cost, machinery set-up cost, heating cost, materials storage cost, and purchasing department cost.
Which activity base/cost driver would you use to allocate each of the above costs to the products?
Homework Answers
Cost drivers are the activities based on which the overheads can be allocated to the various products. These is one of the important aspects of activity based costing which helps to allocate overheads correctly to the products to ascertain correct profitability. Below is the allocation table of the costs to its products:
| Costs | Products |
| Equipment maintenance cost | Number of machine hours |
| Machinery power cost | Number of machine hours |
| Machinery set-up cost | Number of machines installed |
| Heating cost | Number of machine hours/mass of the object |
| Materials storage cost | value of closing inventory |
| Purchasing department cost | Number of purchase order placed |
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