B6021 Module 2 Assignment 2 Manufacturing Overhead

Must use all attached document, 3 supported readings(referances) and other highlighted parts

Borealis Manufacturing has just completed a major change in its quality control (QC) process. Previously, products had been reviewed by QC inspectors at the end of each major process, and the company's 10 QC inspectors were charged to the operation or job as direct labor. In an effort to improve efficiency and quality, a computerized video QC system was purchased for $250,000. The system consists of a minicomputer, fifteen video cameras, and other peripheral hardware and software. The new system uses cameras stationed by QC engineers at key points in the production process. Each time an operation changes or there is a new operation, the cameras are moved, and a new master picture is loaded into the computer by a QC engineer. The camera takes pictures of the units in process, and the computer compares them to the picture of a good unit. Any differences are sent to a QC engineer, who removes the bad units and discusses the flaws with the production supervisors. The new system has replaced the 10 QC inspectors with two QC engineers.

The operating costs of the new QC system, including the salaries of the QC engineers, have been included as factory overhead in calculating the company's plant-wide manufacturing-overhead rate, which is based on direct-labor dollars. The company's president is confused. His vice president of production has told him how efficient the new system is. Yet there is a large increase in the overhead rate. The computation of the rate before and after automation is as follows:

Before

After

Budgeted Manufacturing Overhead

1,900,000

2,100,000

Budgeted Direct Labor Cost

1,000,000

700,000

Budgeted Overhead Rate

190%

300%

Three hundred percent, lamented the president. How can we compete with such a high overhead rate

Using the module readings and the Argosy University online library resources, research manufacturing overhead.

Review the situation. Complete the following:

• Define manufacturing overhead, and:

• Cite three examples of typical costs that would be       included in manufacturing overhead.
• Explain why companies develop predetermined overhead       rates.
• Explain why the increase in the overhead rate should      not have a negative financial impact on Borealis Manufacturing.
• Explain how Borealis Manufacturing could change its      overhead application system to eliminate confusion over product costs.
• Describe how an activity-based costing system might      benefit Borealis Manufacturing.

Write a 3 4-pages paper in Word format. Apply APA standards to citation of sources. Use the following file naming convention: LastnameFirstInitial_M2_A2.doc.