Question

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CP's simple costing system allocates variable manufacturing overhead to its three customers based on machi e consumption of overhead resources more closely. He knows that there are three main departments that consume over e costing system that uses machine-hours as the allocation base. CP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) - X i Data Table 1 S Usage of Cost Drivers by Customer Contract Manufacturing Jarrin fatate Caufield Motors Auto Department Cost Driver Overhead in 2017 Motors 39,000 200 80 Design CAD-design-hours 110 Engineering Engineering-hours 31,080 70 60 240 tme 260,000 120 Production Machine-hours 2,800 1,080 330,080 Total ing Print Done turing overhead ratos.calculated in tho prouieue eten Celeudete OT ove sely. He knOWS that there are tnree main departments th L Requirements 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. 3. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? How else might CPIse its department-by-department analysis of manufacturing overhead costs? CP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system? 4. the information available from 5. Print Done d rates calculated in the previous step. Calculate the total overhead cost for each department and X

Answer 1

1.

Manufacturing Overheads	$ 3,30,080.00
Total Machine Hours	4000
Manufacturing Overhead per machine hour	$            82.52
	State Motors	Caufield Motors	Jarrin Auto
Machine Hours	120	2800	1080
Manufacturing Overheads	$      9,902.40	$ 2,31,056.00	$ 89,121.60

2.

		Cost Driver	State Motors	Caufield Motors	Jarrin Auto	Total	Cost per Cost Driver
Design	$    39,000.00	CAD Design Hours	110	200	80	390	$    100.00
Engineering	$    31,080.00	Engineering Hours	70	60	240	370	$      84.00
Production	$ 2,60,000.00	Machine Hours	120	2800	1080	4000	$      65.00
	State Motors	Caufield Motors	Jarrin Auto
Design	$    11,000.00	$           20,000.00	$   8,000.00
Engineering	$      5,880.00	$             5,040.00	$ 20,160.00
Production	$      7,800.00	$        1,82,000.00	$ 70,200.00
Total	$    24,680.00	$        2,07,040.00	$ 98,360.00

3.In simple system Caufield Motors was being overcharged and will complain about that
Customers State Motors and Jarrin Auto will be unhappy as they have to pay more under department wise costs.

Response can be that on the basis of department costs allocation, costs have been assigned according to the work done, so this is not unfair wherease using only machine hours for allocation will be unfair.

4. CP can use the above information to
set the target over time for reducing the cost.