Question

Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $280,000. AP'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 AP's controller Devon Johnson 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: (Click the icon to view the information.) Read the requirements. 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 AP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) = | Manufacturing overhead rate per machine hour | Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.) Machine Overhead Customer Hours Used Allocated Eastern Motors Holden Motors Jarrin Auto

Answer 1

Above question mainly focus on differentiate between overhead allocation under Simple costing system Vs Department wise Distribution system  

Please see below both distribution of Overhead under Simple costing Vs Department wise distribution system :

		Usage Cost Drivers by Customer Contract
Answer-1	Department	Eastern Motor	Holden Motor	Jarrin Auto	Total
	Design	150	250	100	500
	Engineering	130	100	270	500
	Production	300	3700	1000	5000
	Total	580	4050	1370	6000
	2017 Actual Manufacturing OH IS $ 280,000
	Under Simple costing system , first determined Overhead rate
	Overhead rate	$280000/Total of Production(5000)
	Overhead rate	56
	Now Overhead rate allocated to Production department on the basis of OH rate
		Hrs-a	Rate$/ Hr-b	Total OH cost$(a*b)
	Eastern Motor	300	56	16,800
	Holden Motor	3700	56	2,07,200
	Jarrin Auto	1000	56	56,000
Answer-2	Department	Cost driver	Manf OH 2017$-a	Basis of allocation ( Driver)- As above-b	Rate $/ Hr(a/b)
	Design	CAD-Design - Hrs	35,000	500	70
	Engineering	Engineering - Hrs	25,000	500	50
	Production	Machine Hrs	2,20,000	5,000	44
	Total		2,80,000	6,000
	Department	Eastern Motor	( allocated cost driver rate / Hr* CADdesign Hrs)	Holden Motor	Engineering - Hrs	Jarrin Auto	Machine Hrs
	Design	10,500	150*70	17,500	250*70	7,000	100*70
	Engineering	6,500	130*50	5,000	100*50	13,500	270*50
	Production	13,200	300*44	1,62,800	3700*44	44,000	1000*44
	Total$	30,200		1,85,300		64,500

Answer 3- On the basis of above OH determination - Holden Motor is most Unhappy . Because Overhead amount under Division base is lower than Simple costing system .

Other case , Eastern Motor + Jarin Auto - also not very happy but Most unhappy is Holden Motor

Answer 4 -It is very true that to get More Operating Efficiency company must use " Overhead allocation System " . Under this system , cot can be allocated in depth and in detail

Answer 5 - Correct point will be Last Option D = "All Above "