Reference no: EM132739031
Question: The following overhead cost information is available for the Bright LCD Corporation, a manufacturer of computer monitors:
Activity Allocation Base Overhead Cost
Purchasing Number of purchase orders $400. 000
Receiving Number of shipments of material 100 000
Machine setups Number of setups 300 000
Assembly direct labour hours 125 000
Quality control number of inspections 75 000
During the year, 1000 purchase orders were issued; 300 shipments of material were received; 600 conducted. Employees worked a total of 10 000 direct labour hours on assembly of the monitors.
The corporate managers are trying to decide whether they should use a traditional overhead allocation method based on direct labour (assembly) hours, or switch to an activity-based costing system. Assume that a batch of 200 monitors has resulted in the following cost activity:
Purchase orders 7 Shipments of material received 12 Machine setups 2 Direct labour assembly hours 50 Inspections 3
Required: 1. a) Determine the overhead allocation for the batch of 200 monitors under the traditional overhead allocation based on direct labour hours.
2. b) Determine the overhead allocation for the batch under activity-based costing.
3. c) Any three advanatages and two limitations of Activity based Costing.
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