May tells you that the company has been concerned that they have been inaccurately costing their products: Management accounting Assignment, NCI, Ireland

May tells you that the company has been concerned that they have been inaccurately costing their products. They have decided to plot an ABC system at one of its factories. The factory produces a suit that is available in both a deluxe model and o boat model. The company has manufactured the basic model for years. but introduced the deluxe model serval years ago in order to tap a new segment of the market.

Since the introduction of the deluxe model. the company’s profits have steadily declined and management has become increasingly concerned regarding the accuracy of its costing system. Interestingly, sales of the deluxe model have been increasing rapidly. Currently, manufacturing overhead is assigned to the products on the basis of direct labor hours.

For the current year, the company has striated that it will incur E900.000 in manufacturing overhead cost and will produce and soil 5.000 Deluxe models and 40.000 Basic models. The Deluxe model requires 2 hours of direct labor time per unit, and the Basic model requires I hour of direct labor time per unit.