Question

Car Plant (CP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $280,000. CP’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 CP’s controller Duncan Everett 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:

Manufacturing Overhead in 2017 $ 35,000 25,000 220.000 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours Usage of Cost Drivers by Customer Contract United Hamlet Motors Motors Leland Auto 150 250 130 100 270 300 3,700 1,000 100 280,000 Total

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 CP​'s manufacturing overhead rate for 2017. (Round your answer to the nearest​ cent.)

Answer 1

Total Manufacturing OH	/	Total Machine Hours	=	Manufacturing OH Rate
280000	/	5000	=	56.00	Per Machine hour