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Activity based costing

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Importance of Manufacturing Overhead Allocation
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 overhead . . . . . . . . . . . . 80 37 9
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 companies can improve its product costing accuracy most by converting to activity - based costing (ABC).

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Hi,

Company A will get most benefit by implementing ABC.

ABC helps allocating non-traceable costs. Direct material and direct labor ...

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