Anu Ghai was a new production analyst at RHI, Inc., a large furniture factory in North Carolina. One of her first jobs was to update the predetermined overhead allocation rates for factory production costs. This was normally done once a year by analyzing the previous year's actual data, factoring in projected changes, and calculating a new rate for the coming year. What Anu found was strange. The activity rate for "maintenance" had more than doubled in one year, and she was puzzled how that could have happened. When she spoke with Larry McAfee, the factory manager, Larry told her to spread the increases out over the other activity costs to "smooth out" the trends. She was a bit intimidated by Larry, an imposing and aggressive man, but she knew something wasn't quite right. Then one night, she was at a restaurant and overheard a few employees who worked at RHI talking. They were joking about their work fixing up Larry's home at the lake last year. Suddenly everything made sense. Larry had been using factory labor, tools, and supplies to have his lake house renovated on the weekends. Anu had a distinct feeling that she would come out the loser if she went up against Larry on this issue. She decided to look for work elsewhere.

Requirements:

What are the differences between the traditional method and the ABC method?