Question

Assembly Department $280,000

Testing Department 800,000
Total $1,080,000
Direct machine hours were estimated as follows:

Assembly Department 4,000 hours
Testing Department 5,000
Total 9,000 hours
In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows:

Commercial Residential
Assembly Department 2.0 dmh 3.0 dmh
Testing Department 6.0 1.5
Total machine hours per unit 8.0 dmh 4.5 dmh
a. Determine the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base.
Commercial $fill in the blank 1 per unit
Residential $fill in the blank 2 per unit
b. Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department.
Commercial $fill in the blank 3 per unit
Residential $fill in the blank 4 per unit
c. Recommend to management a product costing approach, based on your analyses in (a) and (b).
1. The management should consider multiple production department factory overhead rate methods, because this method calculates the cost more accurately and considers the fact that commercial products use more costly overheads than residential products.
2. The management should consider single plantwide factory overhead rate methods, because this method calculates the cost more accurately and considers the fact that the overheads are applied evenly based on the direct labor hours.
3. The management could consider either multiple production department factory overhead rate method or the single plantwide rate, as both these methods have the same effect on the final costs.

Answer 1

Answer :-

A. Commercial 540

Residential 360

B. Commercial 585

Residential 390

Explanation :-

a) Calculation to Determine the per-unit factory overhead allocated to the commercial and residential motors .

First step is to calculate the Plantwide overhead rate using this formula

Plantwide overhead rate =Estimated overhead /Estimated machine hours

Let plug in the formula

Plantwide overhead rate = 1080000/9000

Plantwide overhead rate = $ 120 per MH

Now let Determine the per-unit factory overhead allocated to the commercial and residential motors

Using this formula

Per -unit factory overhead allocated=Actual MH per unit *Plantwide overhead rate

Let plug in the formula

Per -unit factory overhead allocated to COMMERCIAL=4.5 dmh*120

Per -unit factory overhead allocated to COMMERCIAL=540

Per -unit factory overhead allocated to RESIDENTIAL=3.0 dmh*120

Per -unit factory overhead allocated to RESIDENTIAL=360

Therefore the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method will be:

Commercial 540

Residential 360

b. Calculation to Determine the per-unit factory overhead allocated to the commercial and residential motors

First step is to calculate the Departmental overhead rate

ASSEMBLY TESTING

Estimated overhead 280,000 800,000

÷Estimated machine hours each department 4,000 5,000

=Departmental overhead rate 70 160

Now calculation the per-unit factory overhead allocated to the commercial and residential motors

COMMERCIAL RESIDENTIAL

Assembly 1.5 dmh*70=105 1.0 dmh*70=70

Testing 3.0*160= 480 2.0*160= 320

Per -unit factory overhead allocated 585 390

(105+480=585)

(70+320=390)

Therefore the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method will be:

Commercial 585

Residential 390