Manufacturing Overhead Assignment Example | Topics and Well Written Essays - 500 words

Manufacturing Overhead - Assignment Example They are used to apply overhead cost throughout the production period. The main reasons why a company would develop predetermined overhead rates would be that; the manager would like to know the accounting system’s valuation of completed jobs before the end of the accounting period. Predetermined overhead rates simplify the organizations record keeping by just simple circulations. Even though an increase in overhead rates leads to lower profits, the introduction of automated QA system replaces the QC inspectors which represent the direct labor. Overhead increases and the direct labor decreases. This leads to an increase in the predetermined overhead rate mainly if it is based on direct labor. Activity Based Costing (ABC) is a powerful decision making tool which is generally used for understanding products, customer costs and profitability based production process. ABC was started in the year 1980s due to the increasing relevance of the traditional cost accounting method. This methodology of ABC if deployed in Borealis Company it will enable the manager to identify the organizations activity with resources to all products and services according to their actual consumption. It assigns more indirect costs to direct costs compared to the convectional costing methods. Borealis organization will have the benefit of more accurate decision making techniques. The manager will be able to decisively estimate the cost elements of all the organization’s products and services and eliminating those products and services that are less profitable and lower the price of those products that are overpriced. Good production strategies can easily evaluated in calculations. The use of t he QC system in the organization can easily be analyzed and the manager will have a strong base on deciding if QC system was the right idea in the production process compared to the 10 QC inspectors. The company will not