Chapter 4, Problem 6E

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:

Direct machine hours were estimated as follows:

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:

1. 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.
2. 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.
3. c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.