What could management do to reduce the overhead

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Reference no: EM13135122

The HITEC Company manufactures multimedia equipment designed to be sold to universities. The companys southeastern plant has undergone production changes that have resulted in decreased usage of direct labor and increased usage of automated processes. As a result, management no longer believes that its overhead allocation method is accurate and is considering changing from a traditional overhead allocation to an activity-based method. The controller has chosen the following activity centers and drivers costs for overhead: Purchase orders Setup Costs Testing costs Machine maintenance Cost Driver Number of orders Number of setups Number of tests Machine hours Overhead Cost Information $200,000 300,000 420,000 800,000 Driver Activity 25,000 15,000 16,000 50,000 Required A. Calculate the overhead rate each cost driver B. An order for 1,000 video projectors had the following requirement Number of purchase orders 3 Number of setups 5 Number of product tests 20 Machine hours 1,500 How much total overhead should be assigned to this order? C. What could management do to reduce the overhead costs assigned to these video projectors? What would be the impact on the net income of reducing overhead assigned to the video projectors?

Reference no: EM13135122

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