You own a management consulting business and often provide advice to Jae Lo, a client...
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Accounting
You own a management consulting business and often provide advice to Jae Lo, a client who wants to diversify her business. Jae is considering the purchase of a small manufacturing company that assembles and packages its many products by hand. She plans to automate the factory and believes the company will be profitable within three years. Currently, the company uses direct labor-hours to allocate overhead to its products. After automating the factory, Jae would prefer to continue using this approach because of its simplicity and asks you for advice.
Review information about plant-wide, departmental, and activity-based allocation methods, as well as multiple predetermined overhead rates Also, review the pros and cons of activity-based costing
1. After Jae Lo automates the factory, should she continue to use direct-labor hours as an allocation base for overhead?
2. Explain your rationale in other words, why or why not? Be sure to support your answer with reasons you noted when you reviewed the textbook.
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