| Allocating Indirect Manufacturing Overhead Costs
Hans Sorensen, controller of Franklin Production, has the choice of allocating indirect manufacturing cost using either
direct manufacturing labour hours or manufacturing machine hours. If he uses labour hours for the month of January,
Product A receives $312,000 in manufacturing overhead charges and Product B receives $448,000. When machine
hours are used Product A receives $352,000 in manufacturing overhead charges while Product B receives only
$408,000.
Required:
You are the department manager in charge of Product A and are strongly in favour of using labour hours. Of course,
your co-manager, who is in charge of Product B, is strongly in favour of machine hours. What are some arguments you
may be able to give for the allocation base that favours your department's product?
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