Bridgeton Industries

The automotive component & Fabrication Plant, ACF, was the original plant site for Bridgeton Industries, a major supplier of components for the domestic automotive industry. All of the ACF’s production was sold to the Big-Three domestic automobile manufactures. Its main competitors were local suppliers and other Bridgeton plants. This company did very well but recently it became less effective when foreign competition and scarce, expensive gasoline caused domestic loss of market share. For boost its selling, it made four criteria, quality, customer service, technical capability, and competitive cost position to evaluate three classifications of products.
Question 1
According to Exhibit 2, Model Year Budgets for the ACF, we can know the total overhead, and direct labor costs. Therefore, we can calculate the budget of overhead allocation rate. | Total Overhead | Direct Labor Costs | Overhead/ Direct Labor Costs | 1987 | $107,954 | $24,682 | 437% |
However, according to the question 1, the overhead allocation rate used in the 1987 model-year strategy study at the ACF was 435%. The two numbers are different because 435% is the actual number, and 437% which is from the budget is estimated rate.
Question 2 | Total OH | DLC | DMC | Sales | OH/DLC | OH/DMC | OH/Sales | 1987 | $107,954 | $24,682 | $122,365 | $330,154 | 437.3794668 | 88.22293957 | 32.69807423 | 1988 | $109,890 | $25,294 | $127,363 | $351,071 | 434.4508579 | 86.28094502 | 31.30136069 | 1989 | $78,157 | $13,537 | $66,956 | $216,338 | 577.3583512 | 116.7288966 | 36.12726382 | 1990 | $79,393 | $14,102 | $69,546 | $226,542 | 562.9910651 | 114.1589739 | 35.04559861 |

The changes in overhead allocation rates from 1988 to 1990 are very significant while we compare to 1987 rates. The reason these changes have occurred can be seen below. Essentially, between 1988 and 1989 total overhead costs decreased at a slower pace than direct labor costs, direct material costs, and sales.