Video: Activity-Based Costing

In this lesson, Nick Palazzolo, CPA, dives into the intricacies of Activity-Based Costing (ABC) by exploring a case scenario involving the New Wave Company and its coffee products. He breaks down the process of reallocating overhead using more precise cost drivers — machine hours for coffee bean processing and pounds for packing and shipping, rather than traditional methods based on direct labor costs. Throughout the lesson, Nick walks through the calculation steps necessary to determine the total cost per pound for premium coffee using ABC, illustrating how to factor in machine hours and materials to come up with an accurate per-item cost. This approach provides a nuanced understanding of costing and is an essential skill for in-depth financial analysis.