The Move to Hardware: A Story on the Chromebook Background: Its March 2012 as the lead financial analyst of the Chromebook division - you are eagerly listening to several Google executives and product managers debate on Google's move to go to building hardware. Finally, it was decided that March 2013 would be the launch date for the Chromebook X-35 unit. In an unprecedented move, Google decided to manufacture the units itself and re-purposed an old Motorola manufacturing facility to support the production of this new Chromebook. HARDWARE SOFTWARE VS Problem: While you are excited about the prospects of the new launch - it also presents serious challenges. Specifically, this is a first time Google will combine hardware with software. This means you will have to come up with new cost allocation schemes to properly account for the significant overhead. Line Item Direct Materials Direct Labor Machine-Hours $ Amount $200 $240 $20 Line Item Direct Labor Machine Hours Chrome book 12 hrs 5 hrs Chrome Software 8 hrs 15 hrs Variable Costs Fixed Cost $146,000 $94,000 $77,000 $163,000 Expectations for the first month of production is that there will be 1,000 units sold to an exceptional educational institution for their exceptional students - Golden Gate University. i. ii. iii. Assume that overhead was applied on the bases of Direct Labor hours - compute the overhead rate. Assume that overhead was applied on the bases of Machine hours - compute the overhead rate. What is the amount of overhead applied for the two departments for the 1,000 units produced in month 1. What is the best allocation driver in the case above? Compute departmental overhead rates for each department. Assume that the allocation exercise in #1 is correct and Chrome Software is deemed unprofitable should you stop it? Why or why not? iv. v. vi