Cost Assignment and JIT
Bunker Company produces two types of glucose monitors (basic andadvanced). Both pass through two producing departments: Fabricationand Assembly. Bunker also has an Inspection Department that isresponsible for testing monitors to ensure that they perform withinprespecified tolerance ranges (a sampling procedure is used).Budgeted data for the three departments are as follows:
| Inspection | Fabrication | Assembly |
| Overhead | $640,000 | $960,000 | $272,000 |
| Number of tests | — | 40,000 | 120,000 |
| Direct labor hours | — | 96,000 | 48,000 |
In the Fabrication Department, the basic model requires 1hour(s) of direct labor and the advanced model requires 2 hour(s).In the Assembly Department, the basic model requires 1.2 hour(s) ofdirect labor and the advanced model requires 2.25 hours. There are60,000 basic units produced and 32,000 advanced units.
Immediately after preparing the budgeted data, a consultantsuggests that two manufacturing cells be created: one for themanufacture of the basic model and the other for the manufacture ofthe advanced model. Raw materials would be delivered to each cell,and goods would be shipped immediately to customers uponcompletion. Workers within each cell would also be trained toperform monitor testing. The total direct overhead costs estimatedfor each cell would be $304,000 for the basic cell and $960,000 forthe advanced cell.
Required:
1. Allocate the inspection costs to eachdepartment.
Compute the overhead cost per unit for each monitor. Overheadrates use direct labor hours. Round your intermediate calculationsand final answers to the nearest cent.
| Basic | $ per unit |
| Advanced | $ per unit |
2. Compute the overhead cost per unit ifmanufacturing cells are created. If required, round yourintermediate calculations and final answers to the nearestcent.
| Basic | $ per unit |
| Advanced | $ per unit |
Which unit overhead cost do you think is more accurate—the onecomputed with a departmental structure, or the one computed using acell structure?
