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HA1 – R12

Exercise 3. Activity-based vs. traditional costing

Please use table 12.4 on page 286 of the Richards book for this exercise. Assume that it represents an accurate picture of costs in the warehouse by customer based on activities. Now let’s compare it to traditional costing.

8. If under traditional costing all management overhead A were allocated only to storage space (number of pallets) and not to handling cost drivers (labor and MHE), which customer would be getting the most “free ride” (the highest number of free, unpaid management hours)?

9. How many free management hours would that customer get?

10. Which customer would be the most disadvantaged (the highest number of paid unused management hours)?

11. How many management hours would that customer pay for and not use?


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