Question

Frames, Inc., manufactures two types of metal frames: large and small. Steel angle iron is first cut to the appropriate sizes; the pieces are then welded together to form the frames. The process involves a high degree of automation. There is considerable indirect labor by skilled technicians and engineers who maintain the automated equipment. There are two manufacturing departments: cutting and welding. The following report details the actual costs of production for the year:


Required:
a. Compute the unit costs of large frames and small frames for the year using a single factory wide overhead rate. The factory wide overhead allocation base is direct labor cost.
b. Compute the unit costs of large frames and small frames for the year using different over-head rates for utilities, indirect labor, and general factory costs. Utility costs and indirect labor costs are allocated to frames using kilowatt- hours. General factory costs are allocated to frames using direct costs (the sum of direct labor and direct materials).
c. Compute the unit costs of large frames and small frames for the year using departmental over-head rates for the cutting and welding departments. General factory overhead costs are evenly divided between the two departments before departmental overhead is allocated to the frames. Cutting department overhead costs are allocated based on direct materials costs; welding department overhead costs are allocated based on kilowatt- hours in the welding department.
d. Analyze why different unit costs result from the different methods of allocating overhead costs to the products. Which method isbest?


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  • CreatedDecember 15, 2014
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