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Mannon Company’s accountant exclaimed, “Our cost accounting system allocates overhead based on direct labour hours, but...

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Accounting

Mannon Company’s accountant exclaimed, “Our cost accountingsystem allocates overhead based on direct labour hours, but ouroverheads cost appear to be more related to setup activities thanto the use of direct labour. It seems as though our costing systemallocates too much cost to large batches of product and not enoughcost to small batches. Explain what she means.

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In the given case Companys accountant is trying to correct the inappropriate cost accounting system in her point of view Let me explain this with an example Let Total overhead cost be 100 Large Batch product 80 units Small batch product 20 units Setup Activities for Large batch    See Answer
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