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Bridgton Industries owns and operates an Automotive Component & Fabrication Plant (ACF). The valuation of the products produced by ACF is based on their respective degree of cost competitiveness. Products that have a cost equal to or lower than competitors’ manufacturing cost are considered to be of the greatest value to the company. ACF’s manufacturing costs include Direct Material, Direct Labor and the respective allocation of the plant’s collective overhead. The overhead and direct labor dollars for model years 1987 through 1990 is stated in Appendix A, as presented in the Harvard Business School 9-190-085 case study. For the 1987 model year, overhead was applied to the products as a percentage of direct labor cost for the production of the respective product. This overhead percentage was calculated “at budget time” and then applied throughout the 1987 production year.
2. TRENDS FOR MODEL YEARS
The overhead and direct labor data was used to calculate the actual applied overhead percentage rate for the years 1987 through 1990, refer to Appendix A. The following assumptions were made for calculating the applied overhead percentage rate for the respective model year and... [continues]
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