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Please can you give me another answer for the question Jola Publishing (6/08) part a, Explain why the overhead allocations have changed in the way indicated above.
I have the the answers in both the BPP kit and the Kaplen kit but unfortunately I have not understand the logic of the answers.Please can you give me another answer more SIMPLE and where I will be able to understand the LOGIC???
PLEASE REPLY
At present they absorb (charge) the overheads based on machine hours. So the more machine hours a product takes, the more overheads it is given.
Using ABC, 75% of the overheads (property costs) are still charged using machine hours – for this reason the ABC costs are not a lot different.
However, 23% of the overheads (quality control) are due to the number of inspections. Because each CB has many more inspections than each TJ, it is only fair to charge more of the Quality Control overheads to a CB. This is why the overhead allocated to a CB is higher under ABC.
(Production set-up costs are based on number of set-ups. The TJ has more of them (more production runs) which means more overheads charged to a TJ. However this is only 2% of the costs and so has not made much difference.)Note that the question did not ask you to check the numbers – only to explain why they have changed.
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