Single Plantwide and Multiple Production Department FactoryOverhead Rate Methods and Product Cost Distortion
Pineapple Motor Company manufactures two types of specialtyelectric motors, a commercial motor and a residential motor,through two production departments, Assembly and Testing.Presently, the company uses a single plantwide factory overheadrate for allocating factory overhead to the two products. However,management is considering using the multiple production departmentfactory overhead rate method. The following factory overhead wasbudgeted for Pineapple:
Assembly Department $197,800 Testing Department 756,800 Total $954,600
Direct machine hours were estimated as follows:
Assembly Department 4,300 hours Testing Department 8,600 Total 12,900 hours
In addition, the direct machine hours (dmh) used to produce aunit of each product in each department were determined fromengineering records, as follows:
Commercial Residential Assembly Department 0.50 dmh 1.00 dmh Testing Department 1.00 2.00 Total machine hours per unit 1.50 dmh 3.00 dmh
a. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under the singleplantwide factory overhead rate method, using direct machine hoursas the allocation base.
Commercial Motor $ per unit Residential Motor $ per unit
b. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under themultiple production department factory overhead rate method, usingdirect machine hours as the allocation base for eachdepartment.
Commercial Motor $ per unit Residential Motor $ per unit
c. Recommend to management a product costingapproach, based on your analyses in (a) and (b).
The factory overhead determined under the single plantwidefactory overhead rate and multiple production department factoryoverhead rate methods are . This is because the ratio of directmachine hours used by each product from the two departments is .However, the two production department overhead rates are . Thus,Peach should consider the easier rate method in this situation.
Single Plantwide and Multiple Production Department FactoryOverhead Rate Methods and Product Cost Distortion
Pineapple Motor Company manufactures two types of specialtyelectric motors, a commercial motor and a residential motor,through two production departments, Assembly and Testing.Presently, the company uses a single plantwide factory overheadrate for allocating factory overhead to the two products. However,management is considering using the multiple production departmentfactory overhead rate method. The following factory overhead wasbudgeted for Pineapple:
| Assembly Department | $197,800 | ||
| Testing Department | 756,800 | ||
| Total | $954,600 | ||
Direct machine hours were estimated as follows:
| Assembly Department | 4,300 | hours | |
| Testing Department | 8,600 | ||
| Total | 12,900 | hours | |
In addition, the direct machine hours (dmh) used to produce aunit of each product in each department were determined fromengineering records, as follows:
| Commercial | Residential | |||
| Assembly Department | 0.50 | dmh | 1.00 | dmh |
| Testing Department | 1.00 | 2.00 | ||
| Total machine hours per unit | 1.50 | dmh | 3.00 | dmh |
a. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under the singleplantwide factory overhead rate method, using direct machine hoursas the allocation base.
| Commercial Motor | $ per unit |
| Residential Motor | $ per unit |
b. Determine the per-unit factory overheadallocated to the Commercial and Residential motors under themultiple production department factory overhead rate method, usingdirect machine hours as the allocation base for eachdepartment.
| Commercial Motor | $ per unit |
| Residential Motor | $ per unit |
c. Recommend to management a product costingapproach, based on your analyses in (a) and (b).
The factory overhead determined under the single plantwidefactory overhead rate and multiple production department factoryoverhead rate methods are . This is because the ratio of directmachine hours used by each product from the two departments is .However, the two production department overhead rates are . Thus,Peach should consider the easier rate method in this situation.
Related questions
Peach Computer Company manufactures a desktop and portablecomputer through two production departments, Assembly and Testing.Presently, the company uses a single plantwide factory overheadrate for allocating factory overhead to the two products. However,management is considering using the multiple production departmentfactory overhead rate method. The following factory overhead wasbudgeted for Peach:
| AssemblyDepartment | $211,200 | ||
| Testing Department | 792,000 | ||
| Total | $1,003,200 | ||
Direct machine hours were estimated as follows:
| AssemblyDepartment | 4,400 | hours | |
| Testing Department | 8,800 | ||
| Total | 13,200 | hours | |
In addition, the direct machine hours (dmh) used to produce aunit of each product in each department were determined fromengineering records, as follows:
| Desktop | Portable | |||
| Assembly Department | 0.50 | dmh | 1.00 | dmh |
| Testing Department | 1.00 | 2.00 | ||
| Total machine hours per unit | 1.50 | dmh | 3.00 | dmh |
a. Determine the per-unit factory overheadallocated to the desktop and portable computers under the singleplantwide factory overhead rate method, using direct machine hoursas the allocation base.
| Desktop | $ per unit |
| Portable | $ per unit |
b. Determine the per-unit factory overheadallocated to the desktop and portable computers under the multipleproduction department factory overhead rate method, using directmachine hours as the allocation base for each department.
| Desktop | $ per unit |
| Portable | $ per unit |
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