The following estimates are available for George Manufacturing for 2004: George Manufacturing uses a traditional overhead allocation
Question:
The following estimates are available for George Manufacturing for 2004:
George Manufacturing uses a traditional overhead allocation system. Manufacturing overhead is allocated based on direct labor hours. George Manufacturing’s sales manager has submitted a proposal that would shift the marketing focus to low-volume products such as the BB2. The proposal is prompted by the higher markups and lack of competition, even at high selling prices.
The company president is concerned that the company’s cost per unit may be sending the wrong message. He recently learned of activity based costing and wonders if it might help.
Assume that you are a member of a work team that has been assigned to review the situation.
Required:
a. Determine the per unit cost for AAI and BB2 using direct labor hours as the allocation base for all manufacturing overhead cost.
b. Determine the per unit cost for AAI and BB2 using activity-based costing to allocate manufacturing overhead costm. ata Allocate other overhead cost based on direct labor hours.)
c. Discuss the marketing manager's proposal in light of your findings. Discuss what would happen if the marketing manager's sales strategy was adopted.
Step by Step Answer:
Introduction To Management Accounting A User Perspective
ISBN: 9780130327505
2nd Edition
Authors: Michael L Werner, Kumen H Jones