How much overhead was allocated to each of the two models last year?

Holly manufacturing case study | Business & Finance homework help

Using this data, Holly’s controller can more accurately allocate overhead costs to each of the two models by using activity-based costing. Activity-based costing assigns overhead costs to specific activities that correspond with production processes or parts of the production process. By determining which cost drivers are most heavily associated with each model, and then assigning those costs accordingly, a more accurate figure can be calculated for each type of product line.

For example, in terms of building depreciation, the Standard Model would require 3,000 square feet and thus incur $40,000 worth of depreciation over the year while the Custom Model requires only 1,000 square feet and incurs just $13,333 worth of depreciation (            $40K / 3). In addition to providing a more accurate overhead allocation for each model produced within a company’s operations; it also allows managers to gain valuable insight into their business practices so they may identify any areas where improvements could be made towards greater efficiency & success in their endeavors…