Steven Brown was in his office contemplating how to respond to his boss on a question he had been asked in a staff meeting this morning. Steven is the controller of Precision Parts Inc., a manufacturer of precision stainless steel parts for the nuclear industry. His boss, Ivayla Corovic, the vice president of finance, had recently asked why Steven's department was spending so much time accumulating departmental information on the manufacturing process to be used to calculate departmental overhead rates when a simple plantwide rate would suffice.
The manufacturing operation has three departments: stamping, grinding and finishing. The stamping department has three large machines; each was purchased for $5 million and is being operated by semi-skilled operators. The grinding department has a number of smaller machines; each was acquired for $100,000 and is being operated by highly skilled operators. The finishing department is staffed by a dozen very skilled individuals who are responsible for ensuring that the parts produced meet the very stringent specifications of the nuclear industry.
Steven developed a system for calculating overhead in each department based on the following: machine hours in the stamping department; direct labour hours in the grinding department; and direct labour hours in the finishing department. In the stamping department, each machine operates for 3,000 hours per year, while the three operators work 1,750 hours each per year. In the grinding department, the 12 operators work 1,500 hours each per year. In the finishing department, the operators work 1,750 hours each per year.
The two products that the company produce use different resources in the departments as follows:

The company produces three times as many of product B as of product A. Overhead costs for the three departments are $3 million, $5 million, and $2 million, respectively. Steven knew that Ivayla did not appreciate that the operations in each department were quite different, so he had to develop a very strong argument in support of his position on using departmental over- head rates rather than a single plantwide rate. Steven believed that departmental rates gave a better allocation of cost, but he had to give Ivayla a detailed answer.
Required:
Prepare a one-page memo supporting Steven's position. Be as specific as possible.

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Product A Product B 0.1 machine hour 0.5 direct labour hour 0.2 direct labour hour 0.3 machine hour 0.2 direct labour hour 0.2 direct labour hour Stamping Grinding Finishing