Question

In: Accounting

Han Solo, controller of Millennium Falcon Mfg., has the choice of allocating indirect manufacturing cost using...

Han Solo, controller of Millennium Falcon Mfg., has the choice of allocating indirect manufacturing cost using either direct manufacturing labour hours or manufacturing machine hours. If he uses labour hours for the month of January, Product A receives $312,000 in manufacturing overhead charges and Product B receives $448,000. When machine hours are used Product A receives $352,000 in manufacturing overhead charges while Product B receives only $408,000.

Required: You are the department manager in charge of Product A and are strongly in favour of using labour hours. Of course, your co-manager, who is in charge of Product B, is strongly in favour of machine hours. What are some arguments you may be able to give for the allocation base that favours your department's product?

Solutions

Expert Solution

Being a department manager in charge of Product A, the opinions one may be able to give for the distribution base that favours our department's product(A) are :

  • Manufacturing overhead items mostly relate to the laborers rather than to the machines, for example lightning is for the people because machines can work in the dark
  • The labor hours reflect a stronger cause and effect relationship to what is being done to the products than do machine hours.
  • Overall, the manufacturing process is labor intensive rather than machine-processing intensive.
  • It is often seen that direct manufacturing labor is a better measure of indirect manufacturing costs than is manufacturing machine hours because the machines can even run when no products are being processed through them.
  • Through payroll information, labor hours are easier to collect as information but not machine hours.

Step-by-step explanation

A strong cause-and-effect relationship between overhead costs and the cost allocation base is essential.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Using Multiple Regression Results to Construct and Apply a Cost Formula The controller for Dohini Manufacturing...
Using Multiple Regression Results to Construct and Apply a Cost Formula The controller for Dohini Manufacturing Company felt that the number of purchase orders alone did not explain the monthly purchasing cost. He knew that nonstandard orders (for example, one requiring an overseas supplier) took more time and effort. He collected data on the number of nonstandard orders for the past 12 months and added that information to the data on purchasing cost and total number of purchase orders. Month  ...
MFG Manufacturing sells a product for $40 per unit. The production cost of the product is...
MFG Manufacturing sells a product for $40 per unit. The production cost of the product is $21 per unit: direct materials of $8, direct labor of $7, variable overhead of $4 and fixed overhead of $2. The fixed overhead per unit comes from dividing $500,000 of fixed factory overhead by 250,000 units produced. In addition, MFG pays $3 for shipping each unit sold. Finally, MFG has fixed costs outside the factory (such as office building depreciation and salaries) that total...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 74,000 Number of employees   Utilities 59,000 Square feet occupied   Insurance 16,900 Value of assets in use      Total $ 149,900         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 71,000 Number of employees   Utilities 58,000 Square feet occupied   Insurance 16,900 Value of assets in use      Total $ 145,900         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 70,000 Number of employees   Utilities 64,000 Square feet occupied   Insurance 17,000 Value of assets in use      Total $ 151,000         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 70,000 Number of employees   Utilities 64,000 Square feet occupied   Insurance 17,000 Value of assets in use      Total $ 151,000         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 74,000 Number of employees   Utilities 59,000 Square feet occupied   Insurance 16,900 Value of assets in use      Total $ 149,900         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 74,000 Number of employees   Utilities 59,000 Square feet occupied   Insurance 16,900 Value of assets in use      Total $ 149,900         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 71,000 Number of employees   Utilities 58,000 Square feet occupied   Insurance 16,900 Value of assets in use      Total $ 145,900         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the...
Won Han Co. has four departments: materials, personnel, manufacturing, and packaging. In a recent month, the four departments incurred three shared indirect expenses. The amounts of these indirect expenses and the bases used to allocate them follow.    Indirect Expense Cost Allocation Base   Supervision $ 70,000 Number of employees   Utilities 64,000 Square feet occupied   Insurance 17,000 Value of assets in use      Total $ 151,000         Departmental data for the company’s recent reporting period follow.      Department Employees Square...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT