#2 11/9/2015 Module 3 Connect Assignment AC 201: QL Fall 2015 Jessica Pena Modul
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11/9/2015 Module 3 Connect Assignment AC 201: QL Fall 2015 Jessica Pena Module 3 Connect Assignment instructions I help value 2.50 points Problem 4-25A Fairness and cost pool allocations LO 4-1, 4-2, 4-3, 4-5 Jocey 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 fom parts and the place the finished parts on a conveyor belt that carries them to Department II, where they are assemble into finished goods. The assembly d parts into fin employee fring costs are $252,000. The typical consumption patterns for the two departments are as follows epartment is labor intensive and requires many workers to assemble ny's manufacturing facility incurs two significant overhead costs: ished goods. The compa e benefits and utility costs. The annual costs of fringe benefits are $324,000 and utility Total 20,000 16,000 DepartmentI Department II Machine hours used Direct labor hours used 14,200 6,800 5,800 9,200 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 ho allocate the total overhead cost of $576,000 urs or labor hours) to Required a. Assume th at you are the supervisor of Department I. Choose the allocation base that would minimize your department's s allocated to both departments using the base that you selected. (Do not roun calculations.) hare of the total overhead cost. Calculate the amount of overhead that would be d intermediate b. Assume that you are the supervisor of Department Il. C hoose the allocation base that would minimize your department's share of the total overhead cost. Calculate the amount of overhead t allocated to both departments using the base that you selecte calculations.) hat would be t round intermediate Department Allocated Cost Tota c. Assume that you are the plant manager and have the authority to change the company's overhead allocation policy. Formulate an overhea d allocation policy that would be fair to the supervisors of both Department I and Department I. Compute the overhead allocations for each depa policy. (Do not round intermediate calculations.) overhead allocations for each department using your http://ezto.mheducation.com/hm.tpx 1/2Explanation / Answer
a. As a supervisor of Department 1, I would like to distribute overhead cost on the basis of direct labor hours. This will result in minimum cost allocation for department 1:
Total Overhead Cost = $576,000
Total Direct Labor Hours = 16,000
Cost per Hour = 576,000 / 16,000 = $36
Cost allocation to Department I = 6,800 x 36 = $244,800
Cost allocation to Department II = 9,200 x 36 = $331,200
b. As a supervisor of Department 2, I would like to distribute overhead cost on the basis of Machine hours. This will result in minimum cost allocation for department 2:
Total Overhead Cost = $576,000
Total Direct Labor Hours = 20,000
Cost per Hour = 576,000 / 20,000 = $28.80
Cost allocation to Department I = 14,200 x 28.80 = $408,960
Cost allocation to Department II = 5,800 x 28.80 = $167,040
c. It is advisible to distribute cost of fringe benefits on the basis of direct labor hours and utility cost on the basis of machine hours.
Allocation rate of Fringe Benefits = 324,000 / 16,000 = $20.25 per Direct Labor Hour
Allocation rate for Utility cost = 252,000 / 20,000 = $12.60 per Machine Hour
Cost Allocation to Departments:
Cost Department 1 Department 2 Fringe Benefits 137,700 186,300 Utility 178,920 73,080 Total 316,620 259,380Related Questions
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