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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.
- Spring '10
- Cost Accounting