Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion
Pineapple 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 Pineapple:
Assembly Department | $240,000 | ||
Testing Department | 750,000 | ||
Total | $990,000 |
Direct machine hours were estimated as follows:
Assembly Department | 3,000 | hours | |
Testing Department | 6,000 | ||
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 | 1.5 | dmh | 1.0 | dmh |
Testing Department | 3.0 | 2.0 | ||
Total machine hours per unit | 4.5 | dmh | 3.0 | dmh |
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 |
Answer
--Requirement [a]
Commercial | $495 | [Total 4.5 DMHs x $ 110] |
Residential | $330 | [Total 3 DMHs x $ 110] |
--Requirement [b]
Commercial | $495 | (1.5 DMHs x $ 80)+(3 DMHs x $125) |
Residential | $330 | (1.0 DMHs x $ 80)+(2 DMHs x $125) |
--Working calculation for rates used above:
Assembly | Testing | Total | ||
A | Overhead cost | $240,000 | $750,000 | $990,000 |
B | Total DMHs | 3000 | 6000 | 9000 |
C = A/B | Overhead rates | $80.00 [Req 'b'] | $125.00 [Req 'b'] | $110.00 [Req 'a'] |
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Pineapple Motor...
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