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:

In the Fabrication Department, the basic model requires 0.5 hour of direct labor and the advanced model requires 1.0 hour. In the Assembly Department, the basic model requires 0.7 hour of direct labor and the advanced model requires 1.25 hours. There are 45,000 basic units produced and 24,000 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 $228,000 for the basic cell and $720,000 for the advanced cell.
Required:
1. Allocate the inspection costs to each department, and compute the overhead cost per unit
for each monitor. (Overhead rates use direct labor hours.)
2. Compute the overhead cost per unit if manufacturing cells are created. 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? Explain.
3. Note that the total overhead costs for the cell structure are lower. Explain why.

Transcribed Image Text:

Inspection Fabrication S720,000 30,000 72,000 Assembly $204,000 90,000 36,000 S480,000 Overhead Number of tests Direct labor hours