4-B2 Allocation, Department Rates, and Direct-Labor Hours Versus Machine Hours The Hernandez Manufacturing...
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Accounting
B Allocation, Department Rates, and DirectLabor Hours Versus Machine Hours
The Hernandez Manufacturing Company has two producing departments, machining and assembly. Mr Hernandez recently automated the machining department. The installation of a CAM system, together with robotic workstations, drastically reduced the amount of direct labor required. Meanwhile, the assembly department remained labor intensive. The company had always used one firmwide rate based on directlabor hours as the costallocation base for applying all costs except direct materials to the final products. Mr Hernandez was considering two alternatives: continue using directlabor hours as the only costallocation base, but use different rates in machining and assembly, and using machine hours as the costallocation base in the machining department while continuing with directlabor hours in assembly. Budgeted data for X are as follows:
tableMachining,Assembly,TotalTotal cost except direct materials$$$
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