Question

Single Hantwed Production Department Factory Overhead Rathods and Product Cost Distortion Edise Motor Company manufactures two types of specialty electric motors, a commercial motor da residential motor, though two production departments, Assembly and in the company single plantwide actory 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 de Assembly Department Testing Department Total 1280.000 100.000 $1,080,000 Direct machine hours were estimated as follows: Assembly Department Testing Department 4,000 hours 5.000 9,000 Total In addition, the direct machine hours (dm) used to produce a unit of each product is each department were determined from engineering records as follows Residential Commercial 2.0 db 1.0 m Assembly Department Testing Department Total machine hours per unit 6.0 1.5 45 h BO a. Determine the per unit factory overheat located to the commercial and residential motors under the single plant wide factory overhead rate method wsing direct machine hours as the section base Commercial Residential 1. Determine the per unit factory overhead stocated to the commercial and residential motors under the multiple production des test factory overhead rate method, using direct machine hours as the allocation base for each department Commercial X per unit Residential X per unit

Answer 1

1. Single Plantwide factory overhead = Total overhead / Total number of machine hours = $1,080,000/9,000 = $120 per machine hour

Per unit Factory overhead rate

Commercial = 8 direct machine hour * 120 per machine hour = $960 per unit

Residential = 4.5 direct machine hour * 120 per machine hour = $540 per unit

2. Factory overhead rate per direct machine hour for Assembly department = $280,000/4,000 hours = $70 per machine hour

Factory overhead rate per direct machine hour for Testing department = $800,000/5,000 hours = $160 per machine hour

Per unit Factory overhead rate

Commercial = 2 dhm * $70 + 6 dhm * $160 = $140+$960 = $1,120 per unit

Residential = 3 dhm * $70 + 1.5 dhm * $160 = $210+$240 = $450 per unit

dhm= direct machine hours