How much overhead was allocated to each of the two models last year?

Holly Manufacturing Case Study | Business & Finance homework help

Using this data, Holly’s controller can more accurately allocate overhead costs to each of the two models by using activity-based costing. Activity-based costs assign overhead costs to certain activities that are related to the production process or part of it. A more precise figure can be obtained for each product line by first identifying which cost drivers are associated most with the model.

For example, in terms of building depreciation, the Standard Model would require 3,000 square feet and thus incur $40,000 worth of depreciation over the year while the Custom Model requires only 1,000 square feet and incurs just $13,333 worth of depreciation (            $40K / 3). In addition to providing a more accurate overhead allocation for each model produced within a company’s operations; it also allows managers to gain valuable insight into their business practices so they may identify any areas where improvements could be made towards greater efficiency & success in their endeavors…

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