The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019. actual variable mamfacturing overhend is $20,000. FCA's simple costing system allocates variable mamufacturing overhend to its three customers based on machine-hours and prices its contracts based on fll costs. One of its customers has reguilarly complained of being charged nonconpetitive prices, so FCA's controller Matthias Hodge reilizes ihat it is time to eanine the consumption of overhend resources more closely. He knows that there are three main departments that consume overhendresources: design production, and engineering Irterviews with the department personnel and examination of time records yield the folowing detailed information Esage of Cost of Drivers by Customer Contract Coner Mamufacturing Overhead in 2019 Gumbs Richardson Cost Driver CAD design hours Motors Motors Auto Department Design Prodon Enginering Mahine hours Total $35,000 25.000 220,000 $250,000 100 150 130 250 T00 Enginering hours 300 3.700 1.000 Required i Compute the mamıfacturing overhend allocated to each customer in 2019 using the simple costing system that uses machine-hous as the allocation base Compute the mamufactring overhend allocated to each customer in 2019 using department-based mamufacturing overhend rates. Using your results from requirements 1 and 2 above, which customer do you think was complaining about being overcharged in the simple system? Which customer() will be umhappy? How would you respond to these concems if raised by those customers?
The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019. actual variable mamfacturing overhend is $20,000. FCA's simple costing system allocates variable mamufacturing overhend to its three customers based on machine-hours and prices its contracts based on fll costs. One of its customers has reguilarly complained of being charged nonconpetitive prices, so FCA's controller Matthias Hodge reilizes ihat it is time to eanine the consumption of overhend resources more closely. He knows that there are three main departments that consume overhendresources: design production, and engineering Irterviews with the department personnel and examination of time records yield the folowing detailed information Esage of Cost of Drivers by Customer Contract Coner Mamufacturing Overhead in 2019 Gumbs Richardson Cost Driver CAD design hours Motors Motors Auto Department Design Prodon Enginering Mahine hours Total $35,000 25.000 220,000 $250,000 100 150 130 250 T00 Enginering hours 300 3.700 1.000 Required i Compute the mamıfacturing overhend allocated to each customer in 2019 using the simple costing system that uses machine-hous as the allocation base Compute the mamufactring overhend allocated to each customer in 2019 using department-based mamufacturing overhend rates. Using your results from requirements 1 and 2 above, which customer do you think was complaining about being overcharged in the simple system? Which customer() will be umhappy? How would you respond to these concems if raised by those customers?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The Fleming Company of Anguilla (FCA) designs and produces automotive parts. In 2019.
actual variable manufacturing overhead is $290,000. FCA'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
nonconpetitive prices, so FCA's controller Matthias Hodge reaálizes that it is time to exanine
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:
Usage of Cost of Drivers by Customer
Contract
Gumbs
Connor
Manufacturing
Overhead in 2019
Richardson
Cost Driver
| CAD design hors
Engineering hours
Machine hours
Motors
Motors
Auto
Department
Design
Production
Engineering
Total
$35,000
250
T00
3,700
150
T30
100
1,000
220,000
$280,000
300
Required
Compute the mamifacturing overhead allocated to each customer in 2019 using the
sinple costing system that uses machine-hours as the allocation base.
Compute the manufacturing overhend allocated to each customer in 2019 using
department-based mamufacturing overhead rates.
Uing your results fiom requirements 1 and 2 above, which customer do you think was
complaining about being overcharged in the simple system? Which customer(s) will be
unhappy? How would you respond to these concems if raised by those customers?
How else might FCA use the information available from its department-by-department
aalysis of mamufacturing overhead costs?
FCA's maragers are wondering if they should further refine the department-by-
departnent costing system into an ABC system by identifying different activities within
each department. Discuss the two (2) advantages and two (2) disadvantages of an ABC
system, if ir is to be implemented in this contera?
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