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You have just taken a job at a manufacturing company and have discovered that they do...

You have just taken a job at a manufacturing company and have discovered that they do not use a predetermined overhead rate to apply overhead costs to products. They simply add actual overhead to the product costs in production as they are incurred.

Compose a short email - 5 to 7 sentences because the president it too busy to read anything longer than that - proposing a predetermined overhead rate for your company. You can use plantwide, departmental or activity based, but whatever you suggest, defend it.

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Answer #1

Sub: suggestion regarding overhead applications.

Sir,

Since I started my job here, i saw that our company doesn't allocates its overhead properly. We didn't have a predetermined overhead allocation rate. So I suggest activity based costing in our manufacturing units. It will identify all activities of our production and assigns cost of each activity based on consumption. It will reduce the unwanted overhead expenses and take control of all activities.

Regards.

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