Smalley Furniture Company has two production departments. The parts department uses automated machinery to make parts; as
Question:
The typical consumption patterns for the two departments follow.
The supervisor of each department receives a bonus based on how well the department controls costs. The companys current policy requires using a single activity base (machine hours or labor hours) to allocate the total overhead cost of $720,000.
Required
a. Assume that you are the parts department supervisor. Choose the allocation base that would minimize your departments share of the total overhead cost. Calculate the amount of overhead to allocate to both departments using the base that you selected.
b. Assume that you are the assembly department supervisor. Choose the allocation base that would minimize your departments share of the total overhead cost. Calculate the amount of overhead to allocate to both departments using the base that you selected.
c. Assume that you are the plant manager and that you have the authority to change the companys overhead allocation policy.
Formulate an overhead allocation policy that would be fair to the supervisors of both the parts and assembly departments. Compute the overhead allocation for each department using yourpolicy.
Step by Step Answer:
Fundamental Managerial Accounting Concepts
ISBN: 978-0078025655
7th edition
Authors: Thomas Edmonds, Christopher Edmonds, Bor Yi Tsay, Philip Old