Arctic Insulation Inc

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Arctic Insulation Inc. 1. The cost accounting department allocates the overhead incurred directly by each depot to the two products based on the amount of money spend on direct labors for each product. However, it will be more efficient to allocate the OH per bale. Per bale allocation will be more preferable because both “produced” and “purchased” bales are used to produce the same product. Apparently when bales are transferred to shredding plant there is no difference between formed and purchased bale. If the Depot OH costs are allocated per bale then the costs per item for a period of 1979-1980 decrease from $8.56 to $7.53 for formed bales and from 5.32 to 4.29 for purchased bales. 2. As Artic Insulation Inc. started to purchase more bales rather than form it Direct Labor costs fall proportionally to the amount of bales formed and rise for purchased bales. At the same time amount allocated to indirect labor rise 8% compare to 21% increase in the amount of processed bales. Overall production efficiency increase in 1980 compare to 1979. In 1980 division overhead amount decreases by 10% which shows that not all 22 plants were used during this period or used inefficiently. 3. Current cost report isn’t useful for evaluation of formed vs purchased bales prices. Neither supplementary nor summary cost report contains information about wages, employees and allocation of indirect labor. The second most costly item in Depot Oh, named other OH, isn’t expanded by reducing the ability to analyze additional data in report and come with a fair conclusion on the state of the company cost accounting. Allocated division overhead is also not expanded, however the amount reduced by 10% which could be a question of efficiency of plants. 4. There is no information regarding capacity of 22 plants, in order to decide whether it is rational to keep 22 plants in service. In

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