your reasonm. The Braintree Furniture Company manufactures two lines of furnitur

Question

your reasonm. The Braintree Furniture Company manufactures two lines of furniture: an upscale, handcrafted line called Richleau, which is produced in small quantities; and a mass- produced, inexpensive line called Particleboard. Both lines are made in the same fac- tory. Richleau is very labor intensive relative to Particleboard. Braintree just switched from a traditional costing method that allocated overhead based on direct labor hours to an activity-based costing system. Under activity-based costing, the amount of overhead allocated to Richleau will be 8-12 (A) higher than under the traditional costing method. (B) lower than under the traditional costing method. (C) either higher or lower than under the traditional costing method, depending on the underlying economics of the business. (D) lower than under traditional costing, as long as activity-based costing is imple- mented in a way that provides more accurate cost information. ious tynes of vaccinations and

Explanation / Answer

Hence the answer is (C).

Assume that two overhead, one for labor-related and other one for machine-related overhead, and assume that the most appropriate allocation base for labor-related overhead is direct labor dollars. If Workers receive higher wage rates - activity-based costing could allocate more labor-related overhead than the traditional costing system, which used direct labor hours. On the other hand, activity-based costing is likely to allocate more machine overhead to Particleboard than the traditional costing system.

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