Activity Based Costing

You have just taken a job at a manufacturing company and have discovered that they use one predetermined overhead rate to apply manufacturing overhead costs. You would like to introduce them to activity based costing and explain to them why this costing method can be used and why it is helpful.

Compose a short email – 2 to 3 short paragraphs because the president it too busy to read anything longer than that – proposing an activity based costing system and what that might mean for product costs and management decisions. You could give a brief example if you feel that is necessary for your explanation to the president.

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