Epsilon Manufacturing Solutions

Scenario: Overhead Allocation and Cost Control

Department Details:

• Department X:
  • Direct Costs: $200,000
  • Indirect Costs: $150,000
  • Allocation Base: Direct Labor Hours (DLH)
  • DLH Used: 10,000

• Department Y:
  • Direct Costs: $250,000
  • Indirect Costs: $180,000
  • Allocation Base: Machine Hours (MH)
  • MH Used: 15,000

Requirements:

1. Overhead Allocation:
   • Allocate overhead costs to Department X and Department Y using the respective allocation bases (Direct Labor Hours for Department X and Machine Hours for Department Y). Present your calculations in a table format.

1. Total Department Costs:
   • Calculate the total cost per unit of output for Department X and Department Y, including direct and allocated overhead costs. Prepare a comparative table showing the total costs for each department.

1. Activity-Based Costing (ABC) Analysis:
   • Evaluate the effectiveness of using activity-based costing (ABC) for overhead allocation in Epsilon Manufacturing Solutions. Discuss the advantages of ABC over traditional methods in improving cost accuracy and control.

1. Cost Control Measures:
   • Recommend two cost control measures for Epsilon Manufacturing Solutions to reduce overhead costs in Department X and Department Y. Explain how these measures can contribute to overall cost management.

1. Strategic Cost Allocation Strategy:
   • Propose a strategic cost allocation strategy for Epsilon Manufacturing Solutions that aligns overhead costs with departmental activities and output. Discuss the benefits of adopting this strategy for enhancing profitability and efficiency.