Stay Dry Raincoats uses three different machines (A,B,and C)to manufacture raincoats.These machines are considered to be a cash generating unit (CGU).Due to climate change and changes in consumer preferences,demand for raincoats has declined in recent years.The following information is relevant to the evaluation of impairment.
Required:
Determine the amount of impairment loss that should be recorded for the cash generating unit and for each of the three machines.
Definitions:
Estimated Activity Base
A projection of the level or volume of activity used in activity-based costing for allocating indirect costs.
ABC Product Costing System
Activity-Based Costing (ABC) is a method that assigns overhead and indirect costs to related products and services based on the activities that drive costs.
Cost Improvement Opportunities
Areas identified within a business process or operation where reductions in cost can be made without compromising the quality or performance of the product or service.
Activity-Based Costing
A costing methodology that allocates overhead costs to specific products or services based on their consumption of resources or activities.
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