Question

Nuste Peay State t.himl elect then t and drag to the Favorites Bar folder. Or import from another browser. Import favorites Help Save & 4Homework workers to assemble parts into tinished goods. The company's manufacturing facility incurs two significant overhead costs employee fringe benefits and utlity costs. The annual costs of finge benefits are $308,000 and utility costs are $236,000. The typical consumption patterns for the two departments are as follows 5,480 9,600 28,000 Machine hours used Direct labor hours used 14,600 6,480 16,000 The supervisor ? each department recen es a bonus based on how well the department controls costs. The company's current policy requires using a single allocation base imachine hous or labor hoursj to allocate the total overhead cost of $544000 Required ?. Assame that yoa are the supervesor of Deoament 1 Choose the allocation base that would mnmze your departments share of the total overhead cost Colcuiale the amount ef ovethead that would be atocated to bon departments using the base that you selected b. Assurie that you are the supervisor of Departent Choose the allocation base that would minimize you deportment's share of the total oveshead cost Calculate the ammount of overtead that would be allocated to both departments using the base that you selected c. Assume that you are the plant manager and have the authory to change the company's ovethewd ellocation polcy Formulate an overhead alccation policy that would be fair to the supervisors of ooth Department 1 and Department i Compute the overhead allocations for each departirent using your polcy

Answer 1

a If Supervisor of Dept I has to choose than, the allocation base would be direct laboe hours: Predetermined Rate Department 34 16000 Allocated cost 21 7600 34 6400) 326400 544000 4 9600 Total b If Supervisor of Dept II has to choose than, the allocation base would be direct laboe hours: Predetermined Rate Department 27.2 20000 Allocated cost 397120 (14600 27.2 146880 544000 27.2 Total cAccording to plant manager there would be two allocation bases as follows: Activ Amount Total Activity Activity Rate Employee Fringe benefits Utility costs 308000 236000 16000 20000 19.25 11.8 Department Allocated cost 295480 (19.25*6400)+(11.8 14600) 248520 544000 19.25*9600)+11.8 5400 Total