Borealis Manufacturing has just completed a major change in its quality control (QC) process. Previously, Products had
Question:
The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the companys plant wide manufacturing-overhead rate, which is based on direct-labor dollars. The companys president is confused. His vice president of production has told him how efficient the new system is. Yet there is a large increase in the overhead rate.
The computation of the rate before and after automation is as follows:
Three hundred percent, lamented the president. How can we compete with such a high Over.
Required:
1. a. Define manufacturing overhead, and cite three examples of typical Costs that would be included in manufacturing overhead.
b. Explain why companies develop predetermined overhead rates,
2. Explain why the increase in the overhead rate should not have a negative financial impact on Borealis Manufacturing.
3. Explain how Borealis Manufacturing could change its overhead application system to eliminate confusion over product costs.
4. Discuss how an activity-based costing system might benefit Borealis Manufacturing.
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