Demo_WP Ch 5

Demo_WP Ch 5 - Demo Chapter 5 Alternative Allocation...

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Demo – Chapter 5 Alternative Allocation Options Martinez Furniture Company (MFC) makes desks and chairs. Desks require 5 hours of direct labor per unit and chairs require 2 hours per unit. Each month MFC normally uses 500,000 hours of direct labor making desks and 300,000 hours of direct labor making chairs in the course of starting and completing work on 100,000 desks and 150,000 chairs. The company incurs $1,088,000 of materials handling cost each month. Required a. Select the most appropriate allocation base (labor hours or units) and compute the amount of the materials handling cost that should be allocated to the desks and the amount that should be allocated to the chairs. Materials Handling Cost ÷ Cost Driver = Allocation Rate $1,088,000 ÷ = Allocated Materials Handling Cost Product Allocation Rate x No. of DL Hours = Allocated Cost Desks x = Chairs x = Total $1,088,000 b. A technological development enables MFC to automate the process for making desks. By installing robots, MFC reduces the amount of direct labor required to make one desk to .4 hours. It now takes 40,000 direct labor hours to make 100,000 desks (.4 hours x 100,000). It still takes 300,000 direct labor hours to make 150,000 chairs (2 hours x 150,000). Assume the same amount
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This note was uploaded on 02/22/2012 for the course BUAD 2050 taught by Professor Nicholasw.schroeder during the Spring '09 term at Toledo.

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Demo_WP Ch 5 - Demo Chapter 5 Alternative Allocation...

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