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Unformatted text preview: level cost driver. Consequently, the more machine­hours per unit that a product needs, the greater the manufacturing overhead allocated to it. Because Monarch uses twice the number of machine­hours per unit compared to Regal, a large amount of manufacturing overhead is allocated to Monarch. The ABC analysis recognizes several batch­level cost drivers such as purchase orders, shipments, and setups. Regal uses these resources much more intensively than Monarch. The ABC system recognizes Regal’s use o f these overhead resources. Consider, for example, purchase order costs. The simple system allocates these costs on the basis o f machine­hours. As a result, each unit of Monarch is allo cated twice the purchase order costs of each unit of Regal. The ABC system allocates $400,500 of purchase order costs to Monarch (equal to $18.20 ($400,500 ¸ 22,000) per unit) and $549,900 of purchase order costs to Regal (equal to $137.48 ($549,900 ¸ 4,000) per unit). Each unit of Regal uses 7.55 ($137.48 ¸ $18.20) times the purchases order costs of each unit of Monarch. Recognizing Regal’s more intensive use o f manufacturing ov...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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