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Importance of 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 Company B Company C
Direct materials 7% 21% 42%
Direct labor 13 42 49
Manufacturing 80 37 9
overhead
100% 100% 100%

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 your answer.

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Solution Summary

Solution explains which of the given three companies can probably improve its product costing accuracy most by converting to activity-based costing (ABC).

Solution Preview

Direct labor and direct materials are easily traced to products. Use of ABC to trace costs to activities and then to ...

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