Essay: Activity Based Costing-Indirect Costs

Sample Essay

The three indirect costs identified above are maintenance costs, increased raw materials handling costs and increased inspection hours.

As Shank & Govindarajan (2008) argues, if the indirect costs are short term as it seen in this case as they a rise due to increased order volume, they will be allocated to the volume of Boeing 737 produced. However, the increased indirect costs may be highly as a result of the increased production of Boeing 737 but not necessary wholly. This implies that the increase will not be wholly allocated in the calculation the contribution margin of this product. However, the highest percentage will be allocated to the calculation of the contribution margin of Boeing 737.

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