Reference no: EM132493200

Question - Solomon Manufacturing Company uses two departments to make its products. Department | is a cutting department that is machine intensive and uses very few employees. Machines cut and form parts and then place the ?nished parts on a conveyor belt that carries them to Department II, where they are assembled into ?nished goods. The assembly department is labor intensive and requires many workers to assemble parts into ?nished goods. The company's manufacturing facility incurs two signi?cant overhead costs: employee fringe bene?ts and utility costs. The annual costs of fringe bene?ts are $304,000 and utility costs are $232,000. The typical consumption patterns for the two departments are as follows:

	Department I	Department II	Total
Machine hours used	14,700	5,300	20,000
Direct labor hours used	6,300	9,700	16,000

The supervisor of each department receives a bonus based on how well the department controls costs. The company's current policy requires using a single allocation base [machine hours or labor hours] to allocate the total overhead cost of $535,000.

Required -

a. Assume that you are the supervisor of Department I. Choose the allocation base that would minimize your department's share of the total overhead cost. Calculate the amount of overhead that would be allocated to both departments using the base that you selected.

b. Assume that you are the supervisor of Department ll. Choose the allocation base that would minimize your department's share of the total overhead cost. Calculate the amount of overhead that would be allocated to both departments using the base that you selected.

c. Assume that you are the plant manager and have the authority to change the company's overhead allocation policy. Formulate an overhead allocation policy that would be fair to the supervisors of both Department | and Department It. Compute the overhead allocations for each department using your policy.