Question

Cost Assignment and JIT Bunker Company produces two types of glucose monitors (basic and advanced). Both...

Cost Assignment and JIT

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 $160,000 $240,000    $68,000  
Number of tests 10,000    30,000  
Direct labor hours 24,000    12,000  

In the Fabrication Department, the basic model requires 1.8 hour(s) of direct labor and the advanced model requires 3.6 hour(s). In the Assembly Department, the basic model requires 2 hour(s) of direct labor and the advanced model requires 3.85 hours. There are 15,000 basic units produced and 8,000 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 $76,000 for the basic cell and $240,000 for the advanced cell.

Required:

1. Allocate the inspection costs to each department.

Fabrication $
Assembly $

Compute the overhead cost per unit for each monitor. Overhead rates use direct labor hours. Round your intermediate calculations and final answers to the nearest cent.

Basic $ per unit
Advanced $ per unit

2. Compute the overhead cost per unit if manufacturing cells are created. If required, round your intermediate calculations and final answers to the nearest cent.

Basic $ per unit
Advanced $ per unit

Which unit overhead cost do you think is more accurate—the one computed with a departmental structure, or the one computed using a cell structure?

Cost Assignment and JIT

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 $160,000 $240,000    $68,000  
Number of tests 10,000    30,000  
Direct labor hours 24,000    12,000  

In the Fabrication Department, the basic model requires 1.8 hour(s) of direct labor and the advanced model requires 3.6 hour(s). In the Assembly Department, the basic model requires 2 hour(s) of direct labor and the advanced model requires 3.85 hours. There are 15,000 basic units produced and 8,000 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 $76,000 for the basic cell and $240,000 for the advanced cell.

Required:

1. Allocate the inspection costs to each department.

Fabrication $
Assembly $

Compute the overhead cost per unit for each monitor. Overhead rates use direct labor hours. Round your intermediate calculations and final answers to the nearest cent.

Basic $ per unit
Advanced $ per unit

2. Compute the overhead cost per unit if manufacturing cells are created. If required, round your intermediate calculations and final answers to the nearest cent.

Basic $ per unit
Advanced $ per unit

Which unit overhead cost do you think is more accurate—the one computed with a departmental structure, or the one computed using a cell structure?

cell structure / departmental structure / not enough info

Homework Answers

Answer #1
Inspection overhead cost per test 4 (160000/40000)
1 Fabrication $40,000
Assembly 120000
Fabrication Assemly
Allocated Inspection cost 40000 120000
Add: Overhead dept cost 240000 68000
Total Dept.OH cost 280000 188000
Total direct labor hours 24000 12000
OH cost per direct labor hour 11.67 15.67
Basic $52.35 per unit 52.35
Advanced $102.34 per unit 102.34
2 Basic $5.07 per unit (76000/15000)
Advanced $30 per unit (240000/8000)
The one computed using a cell structure is more accurate.
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