Choice of Strategic Business Unit Martinsville Manufacturing Company develops parts for the automobile industry. The main product line is interior systems, especially seats and carpets. Martinsville operates in a single large plant that has 30 manufacturing units: carpet dyeing, seat frame fabrication, fabric cutting, and so on. In addition to the 30 manufacturing units, there are six manufacturing support departments: maintenance, engineering, janitorial, scheduling, materials receiving and handling, and information systems. The costs of the support departments are allocated to the 30 manufacturing units on the basis of direct labor cost, materials costs, or the square feet of floor space in the plant occupied by the unit. In the case of the maintenance department, the cost is allocated on the basis of square feet. Maintenance costs have been relatively stable in recent years, but the firm’s accountant advises that the amount of maintenance cost is a little high relative to the industry average.
Required What are the incentive effects on the manufacturing units of the current basis for allocating maintenance costs? What would be a more desirable way, if any, for allocating these costs? Explain your answer.
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