Blue Ridge Project Case Study Solution
The company is Blue Ridge Manufacturing, which produces cabinetry for the RV and marine market. In addition to this, the company has other product lines in which it is working just like the cabinetry for the RV and marine market. The material required to prepare the cabinetry for the RV and marine market, includes: wood and other relevant material according to each job nature. In addition to this, the job requires 20 hours of labors, which might vary from one job to another. The company charges 85 percent mark up on manufacturing costs, which has been computed in the later parts of the document. In total, 18000 labor hours are available in one financial year.
Other Options for MOH Allocation:
Let’s look at different methods of allocating the general production. Keeping in mind that if the method does not share the actual overhead costs from the factory; the unit cost of the product will be faulty and might lead the management to make bad decisions. When analyzing these methods; the question arises as to whether the overheads allocated to each product reflect the overheads actually used to produce the project or not. If the causal link is not obvious, is there at least a clear link between the production costs and the allocation base (e.g., hours worked)? If there is no correlation, the allocation method is suspicious and might result in an unappropriated overhead allocation for each product.
Thanks to the direct manual allocation of production overheads:
In the initial years of the decade 1900; it made sense to allocate production costs based on direct labor. (or direct wages). The process of manufacturing is not automated; the products manufactured are virtually unchanged (e.g., T-type vehicles), and customers do not need shipping or a JIT barcode. At a time when manufacturers are increasing the number of direct workers; the figure of factory administrators, location of maintenance and the consumption of consumables and utilities might increase accordingly. In other words, there is a close association between the direct labor used and the production costs used. When assigningthe cost related to manufacturing and based on direct working hours; the manufacturing cost of a product demanding 30 direct hours is doubled as compared to the manufacturing cost of a product demanding 15 direct hours.
Divide the production costs during the machine time of the service:
With the development of the 20th century; manufacturers examined and controlled the time and movements of direct work (think of Frederick Taylor’s work) and began to replace direct work with machines. Due to increased depreciation, maintenance, and machine configuration, increased usage increases plant redundancy. As direct labor decreases and overhead increases; the relationship between direct labor and overhead increases. Reasonable answer: distribution of production costs based on machine time rather than direct labor time……………………………………
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