Problem 4-25A Fairness and cost pool allocations LO 4-1, 4-2, 4-3, 4-5 Jocey 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 companys manufacturing facility incurs two significant overhead costs: employee fringe benefits and utility costs. The annual costs of fringe benefits are $316,000 and utility costs are $244,000. The typical consumption patterns for the two departments are as follows. Department I Department II Total Machine hours used 14,400 5,600 20,000 Direct labor hours used 6,600 9,400 16,000 The supervisor of each department receives a bonus based on how well the department controls costs. The companys current policy requires using a single allocation base (machine hours or labor hours) to allocate the total overhead cost of $560,000.

Required: a. Assume that you are the supervisor of Department I. Choose the allocation base that would minimize your departments share of the total overhead cost. Calculate the amount of overhead that would be allocated to both departments using the base that you selected. (Do not round intermediate calculations.)

Department Allocated Cost

I

II

Total

b. Assume that you are the supervisor of Department II. Choose the allocation base that would minimize your departments share of the total overhead cost. Calculate the amount of overhead that would be allocated to both departments using the base that you selected. (Do not round intermediate calculations.)

Department Allocated Cost

I

II

Total

c. Assume that you are the plant manager and have the authority to change the companys 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. (Do not round intermediate calculations.)

Costs Department I Department II

Fringe benefits

Utility

Total