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Digi-In Technology Ltd: Case Study

Decent Essays
Overhead, also known as indirect manufacturing costs or manufacturing overhead consisting of all costs that are involved in the manufacturing process of a product except direct material and direct labor (Heisinger & Hoyle, 2012). Due to their difficulty in tracing to a specific job, these costs are often allocated to a particular job based on an estimate. Therefore predetermined rate which is calculated as; estimated overhead costs/estimated activity in allocation base - is used in the process. Proper allocation of overhead to products provides managers with the necessary information for decision making such as setting prices for products. Also, overhead allocation promote efficient use of resources, thereby allowing the company to minimize costs. In addition, as required by US GAAP, overhead must be…show more content…
This company manufacture many different kind of consumer and industrial electronics. An appropriate allocation of overhead in this company will definitely helps managers in their decision making. Internally, proper allocation of overhead will help managers to deal with products pricing, costs adjustment and other decisions easily. Externally, suitable overhead allocation is also needed as the company may need to provide financial account to external user. The type of overhead cost allocation system that I deem necessary for Digi-in Technology Ltd should be activity-based costing. This allocation system with work well for this company due to that fact that the method utilizes several cost pools. Examples of activity pools with this company include; material purchase, molding, machines setup, quality control, testing, etc. With its numerous activity pools, the company must therefore be careful when allocating its overhead costs, and using the plant-wide or departmental allocation may not be very accurate due to the many activities involve in the production of goods in this
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