Question

Cost Assignment and IT Bunker Company produces two types of glucose monitors (basic and advanced). Both pass through two producing departments: Fabrication and Assembly. Bunker also has an Inspection Department that is responsible for testing monitors to ensure that they perform within prespecified tolerance ranges (a sampling procedure is used). Budgeted data for the three departments are as follows: Inspection Fabrication Assembly Overhead $560,000 $840,000 $238,000 Number of tests 35,000 105,000 Direct labor hours 84,000 42,000 In the Fabrication Department, the basic model requires 0.8 hour(s) of direct labor and the advanced model requires 1.6 hour(s). In the Assembly Department, the basic model requires 1 hour(s) of direct labor and the advanced model requires 1.85 hours. There are 52,500 basic units produced and 28,000 advanced units. Immediately after preparing the budgeted data, a consultant suggests that two manufacturing cells be created: one for the manufacture of the basic model and the other for the manufacture of the advanced model. Raw materials would be delivered to each cell, and goods would be shipped immediately to customers upon completion. Workers within each cell would also be trained to perform monitor testing. The total direct overhead costs estimated for each cell would be $266,000 for the basic cell and $840,000 for the advanced cell.

Answer 1

1. Allocate the inspection cost 6 Particulars Fabrication Assembly 7 Inspection costs $ 140,000 $ 420,000 8 Direct overhead costs $ 840,000 $ 238,000 9 Total $ 980,000 $ 658,000 Overhead cost per unit 11 Overhead rate 11.67 15.67 12 Basic 9.33 15.67 13 Advanced 18.67 28.98 25 per unit 47.65 per unit Overhead cost per unit if manufacturing cell are created units overhead costs Cost per unit 17 Basic 52500 $ 266,000 $ 5 per unit 18 Advanced 28000 $ 840,000 $ 30 per unit

5 6 Particulars 7 Inspection costs 8 Direct overhead costs 9 Total 1. Allocate the inspection cost Fabrication Assembly =560000*(35000/(35000+105000)) =560000*(105000/(35000+105000)) 840000 238000 =SUM(B7:38) =SUM(C7:08) Overhead cost per unit =B9/84000 =C9/42000 =B11*0.8 =C11*1 =B11*1.6 =C11*1.85 11 Overhead rate 12 Basic 13 Advanced =B12+C12 =B13+C13 per unit per unit units Overhead cost per unit if manufacturing cell are created overhead costs 266000 840000 17 Basic 18 Advanced 52500 28000 Cost per unit =C17/B17 =C18/B18 per unit per unit

Cell structure manufacturing unit cost is more accurate as it is using just in time manufacturing system, as it takes only manufacturing cost and excludes handling and storage cost, so, in my opinion cell structure manufacturing cost is accurate,as it eliminates unnecessary cost and takes into account the complete production costs.