GEHE 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 years actual data, factoring in projected changes, and calculating a new rate for the coming year. What GEHE found was strange. The activity rate for mainte- nance had more than doubled in one year, and she was puzzled how that could have happened. When she spoke with Larry, the factory manager, she was told 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 wasnt quite right.Then one night she was at a restaurant and overhearda few employees who worked at RHI talking. They were joking about the work they had done fixing up Larrys home at the lake last year. Suddenly everything made sense. Larry had been using factory labor, tools, and supplies to have his lake house reno- vated on the weekends. Anu had a distinct feeling that if she went up against Larry on this issue, she would come out the loser. She decided to look for work elsewhere.

Requirements

1. Besides spotting irregularities ,like the case above, what are some other ways that ABC cost data are useful for manufacturing companies? (1.5p)

2. What are the differences between the traditional method and ABC method? (1.5p)