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Required 1. Compute the manufacturing overhead allocated to each customer in 2020 using the simple costing system that uses machine hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2020 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 RC use the information available from its department-by-department analysis of manufacturing overhead costs? 5. RC'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?

Required 1. Compute the manufacturing overhead allocated to each customer in 2020 using the simple costing system that uses machine hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2020 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 RC use the information available from its department-by-department analysis of manufacturing overhead costs? 5. RC'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
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Please answer or give some opinions on questions 3, 4 and 5 only. Thank you so much.

PLANTWIDE, DEPARTMENT, AND ABC INDIRECT COST RATES. Roadster Company (RC) designs and produces automotive parts. In 2020, the actual variable manufacturing overhead is $280,000. RC's simple costing system allocates variable 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 RC's controller Matthew Draper 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: 1 Home A Insert Page Layout Formulas B 2 Department 3 Design 4 Production 5 Engineering 6 Total Cost Driver CAD-design-hours Engineering-hours Machine-hours Data с Review Manufacturing Overhead in 2020 $ 35,000 25,000 220,000 $280,000 View D ▬▬▬E F Usage of Cost Drivers by Customer Contract Caesar Motors Southern Motors 150 130 300 250 100 3,700 Jupiter Auto 100 270 1,000
Transcribed Image Text:PLANTWIDE, DEPARTMENT, AND ABC INDIRECT COST RATES. Roadster Company (RC) designs and produces automotive parts. In 2020, the actual variable manufacturing overhead is $280,000. RC's simple costing system allocates variable 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 RC's controller Matthew Draper 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: 1 Home A Insert Page Layout Formulas B 2 Department 3 Design 4 Production 5 Engineering 6 Total Cost Driver CAD-design-hours Engineering-hours Machine-hours Data с Review Manufacturing Overhead in 2020 $ 35,000 25,000 220,000 $280,000 View D ▬▬▬E F Usage of Cost Drivers by Customer Contract Caesar Motors Southern Motors 150 130 300 250 100 3,700 Jupiter Auto 100 270 1,000
Required 1. Compute the manufacturing overhead allocated to each customer in 2020 using the simple costing system that uses machine hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2020 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 RC use the information available from its department-by-department analysis of manufacturing overhead costs? 5. RC'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?
Transcribed Image Text:Required 1. Compute the manufacturing overhead allocated to each customer in 2020 using the simple costing system that uses machine hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2020 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 RC use the information available from its department-by-department analysis of manufacturing overhead costs? 5. RC'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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