Activity-based costing and management

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Reference no: EM1347164

Mattresses-A-Million produces Pillow-Top mattresses. They have been using a volume-based costing system to allocate overhead based on direct labor-hours. The Pillow-Top requires two hours of direct labor. The company has been allocating overhead at the rate of $10 per direct labor-hour. The accounting manager thinks they should switch to ABC and wants to know how much they would save. If the Pillow-Top Mattress requires 30 pounds of materials (materials handling costs are $0.10 per pound) and two setups at $5 per setup, is the accounting manager correct? According to the activity-based costs, how much was the cost of making a mattress overstated/understated?

Reference no: EM1347164

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