Manufacturing Overhead

Assignment 2: Manufacturing Overhead

Assignment 2: Manufacturing Overhead

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:

“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.

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