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Franklin Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees. Machines cut and form parts and then place the finished parts on a conveyor belt that carries them to Department II, where they are assembled into finished goods. The assembly department is labor intensive and requires many workers to assemble parts into finished goods. The company's manufacturing facility incurs two significant overhead costs: employee fringe benefits and utility costs. The annual costs of fringe benefits are $276,000 and utility costs are $204,000. The typical consumption patterns for the two departments are as follows: Machine hours used Direct labor hours used Department I 15,400 5,600 Department II 4,600 10,400 Total 20,000 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 $480,000. 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 II. 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 I and Department II. Compute the overhead allocations for each department using your policy.

Franklin Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees. Machines cut and form parts and then place the finished parts on a conveyor belt that carries them to Department II, where they are assembled into finished goods. The assembly department is labor intensive and requires many workers to assemble parts into finished goods. The company's manufacturing facility incurs two significant overhead costs: employee fringe benefits and utility costs. The annual costs of fringe benefits are $276,000 and utility costs are $204,000. The typical consumption patterns for the two departments are as follows: Machine hours used Direct labor hours used Department I 15,400 5,600 Department II 4,600 10,400 Total 20,000 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 $480,000. 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 II. 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 I and Department II. Compute the overhead allocations for each department using your policy.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Franklin Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees. Machines cut and form parts and then place the finished parts on a conveyor belt that carries them to Department II, where they are assembled into finished goods. The assembly department is labor intensive and requires many workers to assemble parts into finished goods. The company's manufacturing facility incurs two significant overhead costs: employee fringe benefits and utility costs. The annual costs of fringe benefits are $276,000 and utility costs are $204,000. The typical consumption patterns for the two departments are as follows: Machine hours used. Direct labor hours used Department I 15,400 5,600 Department II 4,600 10,400 Total 20,000 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 $480,000. 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 II. 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 I and Department II. Compute the overhead allocations for each department using your policy.
Transcribed Image Text:Franklin Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees. Machines cut and form parts and then place the finished parts on a conveyor belt that carries them to Department II, where they are assembled into finished goods. The assembly department is labor intensive and requires many workers to assemble parts into finished goods. The company's manufacturing facility incurs two significant overhead costs: employee fringe benefits and utility costs. The annual costs of fringe benefits are $276,000 and utility costs are $204,000. The typical consumption patterns for the two departments are as follows: Machine hours used. Direct labor hours used Department I 15,400 5,600 Department II 4,600 10,400 Total 20,000 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 $480,000. 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 II. 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 I and Department II. Compute the overhead allocations for each department using your policy.
Required A Required B Required C 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. Note: Do not round intermediate calculations. Department I || Total Allocated Cost $ Show Transcribed Text Required A Required B Required C Department I 11 Total Allocation base chosen Required A 0 Costs Fringe benefits Utility Total Assume that you are the supervisor of Department II. 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. Note: Do not round intermediate calculations. Show Transcribed Text Allocated Cost $ Required B Required C $ 0 < Required A Department Department II 0 $ 3 0 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 I and Department II. Compute the overhead allocations for each department using your policy. Note: Do not round intermediate calculations. < Required B Required C > Ć Show less A Required C > Show less A Show less A
Transcribed Image Text:Required A Required B Required C 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. Note: Do not round intermediate calculations. Department I || Total Allocated Cost $ Show Transcribed Text Required A Required B Required C Department I 11 Total Allocation base chosen Required A 0 Costs Fringe benefits Utility Total Assume that you are the supervisor of Department II. 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. Note: Do not round intermediate calculations. Show Transcribed Text Allocated Cost $ Required B Required C $ 0 < Required A Department Department II 0 $ 3 0 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 I and Department II. Compute the overhead allocations for each department using your policy. Note: Do not round intermediate calculations. < Required B Required C > Ć Show less A Required C > Show less A Show less A
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