In your initial post, imagine that you are a business manager. Your board of directors has requested that you report on the significance and impact of utilizing activity-based costing (ABC) over a single plant-wide predetermined overhead rate (POHR). Using your required readings this week, you will create a brief presentation for your investors analyzing the pros and cons of using ABC, including a comparison of at least two of the activity rates versus the single plant-wide POHR with calculations.
Here is the relevant information you need:
The product that you produce requires four different activities to complete.
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The single plant-wide POHR is $25 per unit, and we produced 10,000 units.
Activity 1: Design Team – The estimated time spent on new ideas is 15,000 hours; we have 4 members of the design team that are paid $40,000 each.
Activity 2: Production Team – The estimated time spent producing the item is 30,000 hours, with 100,000 machine hours with associated costs of $150,000, and we have 8 employees who work 40 hours a week, 52 weeks a year, and they are paid $12 an hour.
Activity 3: Finishing Team – The estimated time spent finishing the product is 15,600 hours, with 20,000 machine hours with associated costs of $75,000, and we have 10 employees who work 30 hours a week each and are paid $20 an hour.
Activity 4: Quality Inspections – There are 200 estimated inspections; we have 2 inspectors with an annual salary of $75,000.