Question

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 $165,600 Testing Department 633,600 Total $799,200 Direct machine hours were estimated as follows: 3,600 hours Assembly Department Testing Department 7,200 Total 10,800 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 1.00 2.00 Testing Department Total machine hours per unit 1.50 dmh 3.00 dmh

Answer 1

(1) in single plantwide method of allocation, for commercial motor is 111 and for residential motors is 222.It is calculated by dividing total overheads by total machine hours that is , 165600/3600=74.This overhead rate is multiplied by the per unit cost of each motors.So, 74*1.50=111 and 74*3=222.

(2) In multiple  overhead rate we allocate costs to each department separately rather than using a single overhead rate.So for commercial motors it is 69 and for residential motors it is 264.This is obtained by dividing the assembly dept overhead by machine hours of assembly dept.So we get, 165600/3600=46.This 46 is again multiplied by the machine hour of commercial motors that is, 46*1.50=69.Similarly, 633600/7200=88*3=264.

(3A) Different - this is because both the overheads received are different in different method.

(b) variable

(c) Predetermined or fixed

(d) directly

(e) multiple overhead rate

Thus peach should consider the multiple overhead rate because the cost  in each department is not homogenous and it varies with activities.