Rooney Manufacturing Company uses two departments to make its
products. Department I is a cutting department that is machine
intensive 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 II, where they are assembled into finished
goods. The assembly department is labor 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
fringe benefits are $300,000 and utility costs are $228,000. The
typical consumption patterns for the two departments are as
follows:
|
Department
I |
Department
II |
Total |
| Machine hours
used |
14,800 |
5,200 |
20,000 |
| Direct labor hours used |
6,200 |
9,800 |
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 $528,000.
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
selected. (Do not round intermediate calculations.)
|
|
|
Department |
Allocated Cost |
| I |
|
| II |
|
| Total |
|
|
b. Assume that you are the supervisor of Department II. 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. (Do not round intermediate calculations.)
|
|
|
Department |
Allocated Cost |
| I |
|
| II |
|
| Total |
|
|
c. Assume that you are the plant manager and have the authority
to change the company’s overhead allocation policy. Formulate an
overhead allocation policy that would be fair to the supervisors of
both Department I and Department II. Compute the overhead
allocations for each department using your policy. (Do not round
intermediate calculations.)
|
|
|
Costs |
Department I |
Department II |
| Fringe benefits |
|
|
| Utility |
|
|
| Total |
|
|
|