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 per unit Residential 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 per unit Residential 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 th 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.
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 per unit Residential 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 per unit Residential 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 th 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text: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
$
per unit
Residential
$4
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
$
per unit
Residential
$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.
Transcribed Image Text:Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion
Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly
and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is
considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse:
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
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