Purchase Solution

Overhead Costs using Single Activity Base

Not what you're looking for?

Ask Custom Question

Minor Medical Company is a manufacturer of blood pressure monitors, catheters, surgical instruments, and other medical products. In each of the past five years, Minor has added approximately 10 new products to its sales. Although its product line has become more diversified and its manufacturing process more complex, Minor continues to apply overhead costs using a single activity base -- direct labor hours.

Explain why activity-based costing would benefit this company.

Purchase this Solution
Solution Summary

The overhead costs for a Minor Medical Company using single activity base for direct labor hours are examined. Why activity-based cost would benefit this company is determined.

Solution Preview

In this situation where the company has a diversified product line and is subject to complex processes, and where products are subject to quite different processes and efforts, using direct labor costs or any other single activity base in applying overhead costs would assign costs to the different products inaccurately. Different products may consume resources quite differently. In this case, using activity-based costing (ABC) to assign overhead costs may be a better choice for the company. It works in the following way:
<br>1. Identify significant activities in the ...

Purchase this Solution
Free BrainMass Quizzes
Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Learning Lean

This quiz will help you understand the basic concepts of Lean.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • Activity-based costing assigns overhead costs

    using a traditional single activity base such as labor hours.

  • Overhead Costs

    45842 Cost Allocation & Activity Based Costing: Overhead Costs 1. Using activity-based systems, the stage of the management cycle that identifies actions that will reduce the full product or service cost is a. planning.

  • Herron Electronics - ABC System

    Herron has traditionally allocated overhead costs to the three products using the companywide allocation base direct labor hours.

  • ABC Per-Unit Costing Versus Traditional Per-Unit Costing

    Thus, it budgets only overhead costs for each activity.

  • Activity Based Costing vs Traditional Cost Allocation

    $135,000 The company allocates overhead costs using the traditional method.

  • Daniel Manufacturing Company - Fairness and cost pool alloca

    The company's current policy requires using a single activity base (machine hours or labor hours) to allocate the total overhead cost of $432,000. Required: a. Assume that you are the supervisor of Department 1.

  • ABC System

    hours as the overhead allocation base) for the sugar cookie, compute the estimated overhead costs per thousand cookies. 5) Using a traditional system (with direct labor hours as the overhead allocation base) for the sugar cookie, compute the estimated

  • Job Costing

    The predetermined overhead rate is calculated as Estimated Overhead/Estimated base activity. For the two department, we are given the estimated overhead and the base activity.

  • Activity Based Costing - Computer Activity Rates

    In a single plant wide rate, we divide the total overhead cost by a single base which is direct labor hours here. The total overhead cost is $358,800 ( the addition of all overhead costs) and the total direct labor hours are given as 8,000.

View More Related Solutions