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Essay text:
If we analyze deeply the data in Exhibit 4, it clearly shows that the manufacturing process for flow controller has more activities compared to valve and pump. For example, to produce 4,000 units of flow controller, we need to consume 100 production runs and 625 hours of engineering work. However, with 50% of the production runs and 60% of the engineering work of flow controller's overhead resources, the company can produce 12,500 units of pumps. Besides that, flow controller also has a highest number of shipments per month compared to pump and valve.
This indicates that the current overhead cost allocation practice did not reflect the real costs incurred on the products...
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