Rollie Manufacturing makes, among other things, wheels for roller skates. Manufacturing Department B receives plastic wheel casings from Manufacturing Department A and puts them on axles along with some ball bearings. The wheel casings have been inspected in Department A and should be free from major defects.
Most of the work in Department B is done by machine, but before the wheels are sent to the Packaging Department they are inspected for defects. Poorly made wheels are disassembled by hand and sent back to the beginning of the Department B line for rework. Thus any wheel that was made incorrectly and fixed takes more than twice as long to finish as a wheel that was made correctly the first time. Any wheels still not useable after rework are thrown away. The same amount of ball bearings is requisitioned from the materials storeroom daily. Any leftover ball bearings at the end of the day are discarded. Ball bearings are measured by weight. The machines in Department B are serviced only at night after the manufacturing run is over to save on intentional downtime. There are three machines in Department B, so if one does go down during processing there are still two workable machines until the next day. Rollie's goal in Department B is to produce 400 usable wheels per day.
REQUIRED
1. Under what circumstance would you consider ball bearings indirect rather than direct materials? Would you consider them direct materials or overhead in this problem?
2. What nonfinancial measures can Rollie use in Department B to control overhead costs?
3. Suggest some ways Rollie can better plan for and reduce overhead costs, given your answer to requirement 2.