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Nichols Inc, manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing
Nichols Inc, manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows: Activities Material handling Assembly Cost driver Allocation Rate Number of parts $1 per part Labor hours $20 per hour Time at inspection station $10 per minute Inspection The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour. Nichols' management is considering to implement ABC system because ABC system is a highly refined costing system ABC system requires minimal expertise to operate ABC system provides more accurate direct cost figures ABC system can be implemented cheaply
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