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Thornton Manufacturing Company uses two departments to make its products. Department I is a cutting department that is machine intensive and uses very few employees.

Thornton 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 $312,000 and utility costs are $240,000. The typical consumption patterns for the two departments are as follows:

Department I

Department II

TOTAL

Machine Hrs Used

14,500

5,500

20,000

Direct Labor Hrs Used

6,500

9,500

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 $552,000

A. 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

Costs Department I Department II
Fringe benefits $126,750 $185,250
Utility 174,000 66,000
Total $300,750 $251,250

CAN YOU SHOW ME THE CALCULATIONS OF HOW THEY GOT THESE NUMBERS IN THE CHART?

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