Question

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 $202,800 Testing Department 780,000 $982,800 Total Direct machine hours were estimated as follows: Assembly Department 3,900 hours Testing Department 7,800 Total 11,700 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 0.50 dmh 1.00 dmh Testing Department 1.00 2.00 Total machine hours per 1.50 dmh 3.00 dmh unit 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 Motor $ per unit Residential Motor $ 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 Motor per unit Residential Motor per unit

Answer 1

Answer

• Workings

		Assembly	Testing	Total
A	Total Overhead cost	$202,800	$780,000	$982,800
B	Total machine hours	3900	7800	11700
C = A/B	Overhead rates	$52	$100	$84

• [a]

Commercial motor	$126	[1.5 DMH x $ 84]
Residential motor	$252	[3.0 DMH x $ 84]

• [b]

Commercial motor	$126	(0.5 hours x $52)+(1 hour x $100)
Residential motor	$252	(1 hours x $52)+(2 hour x $100)