Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $317,250. AP's simple costing system allocates manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP's controller DrewBailey realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information: Read the requirements2. Requirement 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Determine the formula needed to calculate overhead using the simple costing method and then calculate AP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) (1) ÷ (2) = Manufacturing overhead rate ÷ = per machine hour Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.) Machine Overhead Customer Hours Used Allocated United Motors Anthony Motors Island Auto Requirement 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. Determine the formula used to calculate the department-based manufacturing overhead rates: (3) ÷ (4) = Manufacturing overhead rate by dept. AP's 2017 manufacturing overhead rates by department are as follows: Manufacturing Overhead Rate Department (by Department) Design per (5) Engineering per (6) Production per (7) Calculate the overhead allocated to each customer, by department, using the departmental manufacturing overhead rates calculated in the previous step. Calculate the total overhead cost for each department and each customer. United Anthony Island Department Motors Motors Auto Total Design Engineering Production Total Requirement 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? .Requirement 4. How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs? Other than for pricing, AP can also use the information from the department-based system A. to set targets over time to reduce both the consumption of each indirect resource and the unit costs of the resources. B. to examine and streamline its own operations so that there is maximum value-added from all indirect resources. C. to reevaluate employee pay scales. D. to provide incentives to professional staff. Requirement 5. AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system? A. If significant costs are incurred on different activities within a department, but each activity has the same cost driver. B. If a single activity accounts for a sizable proportion of the department's costs. C. If there wasn't much variation among contracts in the consumption of activities within a department. D. All of the above. 1: Data Table Usage of Cost Drivers by Customer Contract Department Cost Driver Manufacturing Overhead in 2017 United Motors Anthony Motors Island Auto Design CAD-design-hours $44,100 120 210 90 Engineering Engineering-hours 33,150 80 50 260 Production Machine-hours 240,000 90 2,000 910 Total $317,250 2: Requirements 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? 4. How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs? 5. AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system?

Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $317,250. AP's simple costing system allocates manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP's controller DrewBailey realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information: Read the requirements2. Requirement 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Determine the formula needed to calculate overhead using the simple costing method and then calculate AP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) (1) ÷ (2) = Manufacturing overhead rate ÷ = per machine hour Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.) Machine Overhead Customer Hours Used Allocated United Motors Anthony Motors Island Auto Requirement 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. Determine the formula used to calculate the department-based manufacturing overhead rates: (3) ÷ (4) = Manufacturing overhead rate by dept. AP's 2017 manufacturing overhead rates by department are as follows: Manufacturing Overhead Rate Department (by Department) Design per (5) Engineering per (6) Production per (7) Calculate the overhead allocated to each customer, by department, using the departmental manufacturing overhead rates calculated in the previous step. Calculate the total overhead cost for each department and each customer. United Anthony Island Department Motors Motors Auto Total Design Engineering Production Total Requirement 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? .Requirement 4. How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs? Other than for pricing, AP can also use the information from the department-based system A. to set targets over time to reduce both the consumption of each indirect resource and the unit costs of the resources. B. to examine and streamline its own operations so that there is maximum value-added from all indirect resources. C. to reevaluate employee pay scales. D. to provide incentives to professional staff. Requirement 5. AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system? A. If significant costs are incurred on different activities within a department, but each activity has the same cost driver. B. If a single activity accounts for a sizable proportion of the department's costs. C. If there wasn't much variation among contracts in the consumption of activities within a department. D. All of the above. 1: Data Table Usage of Cost Drivers by Customer Contract Department Cost Driver Manufacturing Overhead in 2017 United Motors Anthony Motors Island Auto Design CAD-design-hours $44,100 120 210 90 Engineering Engineering-hours 33,150 80 50 260 Production Machine-hours 240,000 90 2,000 910 Total $317,250 2: Requirements 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? 4. How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs? 5. AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Automotive Products (AP) designs and produces automotive parts. In

2017, actual manufacturing overhead is $317,250. AP's simple costing system allocates manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so AP's controller DrewBailey realizes that it is time to examine the consumption of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information:

Read the requirements2.

Requirement 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base.

Determine the formula needed to calculate overhead using the simple costing method and then calculate AP's manufacturing overhead rate for 2017.
(Round your answer to the nearest cent.)

(1)	÷	(2)	=	Manufacturing overhead rate
	÷		=		per machine hour

Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.)

	Machine	Overhead
Customer	Hours Used	Allocated
United Motors
Anthony Motors
Island Auto

Requirement 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates.

Determine the formula used to calculate the department-based manufacturing overhead rates:

(3)

(4)

Manufacturing overhead rate by dept.

AP's 2017 manufacturing overhead rates by department are as follows:

	Manufacturing Overhead Rate
Department	(by Department)
Design		per	(5)
Engineering		per	(6)
Production		per	(7)

Calculate the overhead allocated to each customer, by department, using the departmental manufacturing overhead rates calculated in the previous step. Calculate the total overhead cost for each department and each customer.

	United	Anthony	Island
Department	Motors	Motors	Auto	Total
Design
Engineering
Production
Total

Requirement 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns?

.Requirement 4. How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs?

Other than for pricing, AP can also use the information from the department-based system

A. to set targets over time to reduce both the consumption of each indirect resource and the unit costs of the resources.

B. to examine and streamline its own operations so that there is maximum value-added from all indirect resources.

C. to reevaluate employee pay scales.

D. to provide incentives to professional staff.

Requirement 5.

AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system?

A. If significant costs are incurred on different activities within a department, but each activity has the same cost driver.

B. If a single activity accounts for a sizable proportion of the department's costs.

C. If there wasn't much variation among contracts in the consumption of activities within a department.

D. All of the above.

1: Data Table

			Usage of Cost Drivers by Customer Contract
Department	Cost Driver	Manufacturing Overhead in 2017	United Motors	Anthony Motors	Island Auto
Design	CAD-design-hours	$44,100	120	210	90
Engineering	Engineering-hours	33,150	80	50	260
Production	Machine-hours	240,000	90	2,000	910
Total		$317,250

2: Requirements

1.	Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base.
2.	Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates.
3.	Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns?
4.	How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs?
5.	AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system?

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