Question

Cost Assignment and JIT

Bunker Company produces two types of glucose monitors (basic and advanced). Both pass through two producing departments: Fabrication and Assembly. Bunker also has an Inspection Department that is responsible for testing monitors to ensure that they perform within prespecified tolerance ranges (a sampling procedure is used). Budgeted data for the three departments are as follows:

	Inspection	Fabrication	Assembly
Overhead	$640,000	$960,000	$272,000
Number of tests	—	40,000	120,000
Direct labor hours	—	96,000	48,000

In the Fabrication Department, the basic model requires 1 hour(s) of direct labor and the advanced model requires 2 hour(s). In the Assembly Department, the basic model requires 1.2 hour(s) of direct labor and the advanced model requires 2.25 hours. There are 60,000 basic units produced and 32,000 advanced units.

Immediately after preparing the budgeted data, a consultant suggests that two manufacturing cells be created: one for the manufacture of the basic model and the other for the manufacture of the advanced model. Raw materials would be delivered to each cell, and goods would be shipped immediately to customers upon completion. Workers within each cell would also be trained to perform monitor testing. The total direct overhead costs estimated for each cell would be $304,000 for the basic cell and $960,000 for the advanced cell.

Required:

1. Allocate the inspection costs to each department.

Fabrication	$
Assembly	$

Compute the overhead cost per unit for each monitor. Overhead rates use direct labor hours. Round your intermediate calculations and final answers to the nearest cent.

Basic	$ per unit
Advanced	$ per unit

2. Compute the overhead cost per unit if manufacturing cells are created. If required, round your intermediate calculations and final answers to the nearest cent.

Basic	$ per unit
Advanced	$ per unit

Which unit overhead cost do you think is more accurate—the one computed with a departmental structure, or the one computed using a cell structure?

Answer 1

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part 1
		No of Test	Ratio	Overhead	Allocation	Direct Overheads	Total Overheads	Direct Labor Hours	Overhead Cost per Hour
					Ratio*Overhead		Allocation+Direct		Overheads/DLH
Fabrication		40,000	25%	$          640,000	$                     160,000	$                        960,000	$                   1,120,000	96,000	$                                          11.67
Assembly		120,000	75%	$          640,000	$                     480,000	$                        272,000	$                      752,000	48,000	$                                          15.67
Total		160,000
Unit Cost:
		Fabrication			Assembly			Total
		Overhead Cost	DLH per unit	Ovh per unit	Overhead Cost	DLH per unit	Ovh per unit
Basic		$                         11.67	1	$               11.67	$                          15.67	1.20	$                           18.80	$                                30.47
Advanced		$                         11.67	2	$               23.33	$                          15.67	2.25	$                           35.25	$                                58.58
Part 2
Basic		$304,000/60,000	$                 5.07
Advanced		$960,000/32,000	$               30.00
Part 3
Cell Structure