IKAR, a small home furniture factory, operates with THREE production departments: Assembly, Polishing, and Packing, and TWO
Question:
IKAR, a small home furniture factory, operates with THREE production departments: Assembly, Polishing, and Packing, and TWO service departments: Stores and Maintenance. For the forthcoming period, the total budgeted overhead costs are as follows:
Allocated costs:
Departments Indirect materials ($) Indirect labor ($)
Assembly 3,800 9,900
Polishing 4,630 8,180
Packing 2,120 6,200
Stores 900 4,760
Maintenance 120 5,800
In addition to allocated costs, the following factory overheads were obtained from the accounts relating to the period:
Heating and Lighting: $20,180 Rent and Rate: $36,000 Production supervision: $56,000 Plant depreciation: $29,000 Lubricant: $5,830 Office depreciation: $7,600 Direct labor: $15,000 Direct materials: $21,000
Furthermore, the following information is available for each department:
Department Assembly Polishing Packing Stores Maintenance
Number of Employees 20 12 8 6 4
Floor area (sq. meters) 1150 1800 1250 1350 350
Machine hours 1200 2140 1600 N/A N/A
Direct labor hours 120 30 50 N/A N/A
Plant's value ('000$) 210 190 50 13 17
Considering this extensive dataset, analyze the overhead allocation process for IKAR. Discuss the implications of the allocated costs, factory overheads, and department-specific information on the factory's budgeting and operational efficiency. Additionally, propose strategies for optimizing cost allocation, improving resource utilization, and enhancing overall productivity within IKAR's production and service departments.
Provide a detailed analysis supported by relevant calculations, comparisons, and recommendations, considering the unique characteristics and challenges faced by IKAR as a small home furniture factory in the contemporary market landscape.
Cost Management Measuring, Monitoring and Motivating Performance
ISBN: 978-1119185697
3rd Canadian edition
Authors: Leslie G. Eldenburg, Susan K. Wolcott, Liang Hsuan Chen, Gail Cook