Nichols Inc. manufactures remote controls. Currently the company uses a plant-wide rate for allocating manufacturing overhead. The plant manager is considering switching-over to ABC costing system and has asked the accounting department to identify the primary production activities and their cost drivers which are as follows:
| Activities | Cost driver | Allocation Rate |
| Material handling | Number of parts | $1 per part |
| Assembly | Labor hours | $20 per hour |
| Inspection | Time at inspection station | $10 per minute |
The current traditional cost method allocates overhead based on direct manufacturing labor hours using a rate of $30 per labor hour.
Nichols' management is considering to implement ABC system because ________.
◦ ABC system can be implemented cheaply
◦ ABC system provides more accurate direct cost figures
◦ ABC system is a highly refined costing system
◦ ABC system requires minimal expertise to operate
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