The Aeronautical Ltd. has production facility specialising in jobs for the aircraft components market. The traditional costing system has two direct-cost categories, namely, direct materials and direct manufacturing labour and a single direct cost pool, that is, manufacturing overhead allocated on the basis of direct labour-hours. The indirect cost allocation rate would have been `115 direct manufacturing labour-hour.
The company has now decided to replace the single indirect cost pool with five indirect cost pools, representing five activity areas each with its own supervising and budget responsibility. The relevant data are as follows:
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