Question

Chapter 4 Assignment i Runde Manufacturing Company uses two departments to make its products Department is a cutting department that is machine intensve and uses very few employees Machines cut and form parts and then place the finished parts on a conveyor belt that carries them to Department where they are assembled into finished goods The assembly department islabor intensive and requires many workers to assemble parts into finished goods The company's manufacturing facility incurs two significant overhead costs employee fringe benefits and utility costs The annual costs of thinge benefits are $296,000 and utility costs are 5224.000 The typical consumption patterns for the two departments are as follows Machine hours used Direct labor hours used Department T 14,900 6.100 Department II 5,100 9,900 Total 20,00 16.000 The supervisor of each department receives a bonus based on how well the department controls costs. The company's current policy requires using a single allocation base (machine hours or labor hours to allocate the total overhead cost of $520,000 Required a. Assume that you are the supervisor of Department I Choose the allocation base that would minimize your department's share of the total overhead cost Calculate the amount of overhead that would be allocated to both departments using the base that you colected b. Assume that you are the superior of Department Choose the allocation base that would minimize your department's share of the total overhead cost Calculate the amount of overhead that would be allocated to both departments using the base that you selected c. Assume that you are the plant manager and have the authonty to change the company's overhead allocation policy Formulate an overhead allocation policy that would be fair to the supervisors of both Department and Department Compute the overhead wlocations for each department using your policy Complete this question by entering your answers in the tabs below Required A Roured Roc Assume that you are the supervisor of Department Choose the allocation base that would minime your department share of the total overhead cott C ulate the amount of overhead that would be cated to both departments using the base that you selected Dorot our d e taculata

Answer 1

a) Overhead allocation that minimise department I share
of the Total overhead cost is direct labor hours (DLH) base.
	Deptt I	Deptt II	Overhead costs
Total Overhead			520000
DLH ratio	6100/16000=	9900/16000=
	0.38125	0.61875
Overhead allocation	198250	321750	520000
b) Overhead allocation that minimise department II share
of the Total overhead cost is machine hours (MH) base.
	Deptt I	Deptt II	Overhead costs
Total Overhead			520000
MH ratio	14900/20000=	5100/20000=
	0.745	0.255
Overhead allocation	387400	132600	520000
c) Overhead allocation that fairly as per overhead allocation policy and
the allocated overhead based on the policy is:
	Overhead costs	Deptt I	Deptt II	Total Allocated
				Overhead costs
MH ratio		0.745	0.255
DLH ratio		0.38125	0.61875
Utility costs based on MH	224000	166880	57120	224000
Fringe benefits costs based on DLH	296000	112850	183150	296000
Total allocation of overhead	520000	279730	240270	520000