Manufacturing Overhead Allocation
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The percentages of product costs comprised by direct materials, direct labor, and manufacturing overhead for three companies are as follows
Company A
Direct Materials 7%
Direct labor 13
Manufacturing overhead 80
Company B
Direct Materials 21%
Direct labor 42
Manufacturing overhead 37
Company C
Direct Materials 42%
Direct labor 29
Manufacturing overhead 9
Based on this information, which of these three companies would probably improve its product costing accuracy most by converting to activity-based costing (ABC)? Explain
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Solution Summary
The solution explains what kind of company would benefit from adopting an activity based costing system.
Solution Preview
ABC helps in allocating the overhead costs correctly. A firm which has high overhead would benefit more than a firm with low overheads. This is because there is a ...
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