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Activity_Based_Costing_Exercise - 3 2 9 The following...

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Activity Based Costing Mido Company produces three products A, B, and C. Accountants accumulate all overhead in a single cost pool and allocate it based on direct labor hours. Management is considering discontinuing product B. Top management decided to begin implementing ABC. The following data is available. Products Total A B C Sales (£) 180,000 100,000 120,000 400,000 Total Direct Costs (£) 120,000 46,800 50,000 216,800 Indirect Costs 106,400 Operating income (£) 76,800 Total Direct Labor Hours 24,000 28,000 4,000 Number of set-ups 15 5 40 Number of material orders 2 1 7 Number of times material handled 1 2 8 Number of inspection hours
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Unformatted text preview: 3 2 9 The following information regarding manufacturing overhead is collected: Mfg. Overhead Mfg. Overhead Costs Allocation bases Set-up £ 35,400 Number of set-ups Ordering materials £ 29,980 Number of material orders Handling materials £ 7,700 Number of times material was handled Inspection £ 33,320 Number of inspection hours £106,400 Required: 1-Identify the operating income for each product using the traditional method and ABC. 2-Do you recommend Mido to drop product B, Explain your answer and clarify how cost allocation may distort cost information. 3-Is there any limitation of ABC? Explain....
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