Auerbach Enterprises manufactures air conditioners forautomobiles and trucks manufactured throughout North America. Thecompany designs its products with flexibility to accommodate manymakes and models of automobiles and trucks. The company%u2019s twomain products are MaxiFlow and Alaska. MaxiFlow uses a few complexfabricated parts, but these have been found easy to assemble andtest. On the other hand, Alaska uses many standard parts but has acomplex assembly and testing process. MaxiFlow requires directmaterials costs which total $135 per unit, while Alaska%u2019sdirect materials requirements total $110 per unit. Direct laborcosts per unit are $75 for MaxiFlow and $95 for Alaska.
Auerbach Enterprises uses machine hours as the cost driver toassign overhead costs to the air conditioners. The company has useda company-wide predetermined overhead rate in past years, but thenew controller, Bennie Leon, is considering the use of departmentaloverhead rates beginning with the next year.
The following planning information is available for the nextyear for each the four manufacturing departments within thecompany:
Overhead Machine
Costs Hours
Radiator parts fabrication.............. $ 80,000 10,000
Radiator assembly, weld, and test.... 100,000 20,000
Compressor parts fabrication.......... 120,000 5,000
Compressor assembly and test........ 180,000 45,000
Total $480,000 80,000
Normally, the air conditioners are produced in batch sizes of 20at a time. A production batch of 20 units requires the followingnumber of hours in each department:
MaxiFlow Alaska
Radiator parts fabrication........... 28 16
Radiator assembly, weld, and test....... 30 74
Compressor parts fabrication......... 32 8
Compressor assembly and test......... 26 66
Total 116 164
Questions: Please tellme how you got the answer in addition to providing the answer.Thanks.
1. Compute thedepartmental overhead rates using machine hours as the costdriver.
2. Compute acompany-wide overhead rate using machine hours as the costdriver.
3. Compute the overheadcosts per batch of MaxiFlow and Alaskaassuming:
(a) The company-widerate.
(b) The departmentalrates.
4. Compute the totalcosts per unit of MaxiFlow and Alaska assuming:
(a) The company-widerate.
(b) The departmentalrates.
5. Is one productaffected more than the other by use of departmental rates ratherthan a company-wide rate? Why or why not?
Auerbach Enterprises manufactures air conditioners forautomobiles and trucks manufactured throughout North America. Thecompany designs its products with flexibility to accommodate manymakes and models of automobiles and trucks. The company%u2019s twomain products are MaxiFlow and Alaska. MaxiFlow uses a few complexfabricated parts, but these have been found easy to assemble andtest. On the other hand, Alaska uses many standard parts but has acomplex assembly and testing process. MaxiFlow requires directmaterials costs which total $135 per unit, while Alaska%u2019sdirect materials requirements total $110 per unit. Direct laborcosts per unit are $75 for MaxiFlow and $95 for Alaska.
Auerbach Enterprises uses machine hours as the cost driver toassign overhead costs to the air conditioners. The company has useda company-wide predetermined overhead rate in past years, but thenew controller, Bennie Leon, is considering the use of departmentaloverhead rates beginning with the next year.
The following planning information is available for the nextyear for each the four manufacturing departments within thecompany:
Overhead Machine
Costs Hours
Radiator parts fabrication.............. $ 80,000 10,000
Radiator assembly, weld, and test.... 100,000 20,000
Compressor parts fabrication.......... 120,000 5,000
Compressor assembly and test........ 180,000 45,000
Total $480,000 80,000
Normally, the air conditioners are produced in batch sizes of 20at a time. A production batch of 20 units requires the followingnumber of hours in each department:
MaxiFlow Alaska
Radiator parts fabrication........... 28 16
Radiator assembly, weld, and test....... 30 74
Compressor parts fabrication......... 32 8
Compressor assembly and test......... 26 66
Total 116 164
Questions: Please tellme how you got the answer in addition to providing the answer.Thanks.
1. Compute thedepartmental overhead rates using machine hours as the costdriver.
2. Compute acompany-wide overhead rate using machine hours as the costdriver.
3. Compute the overheadcosts per batch of MaxiFlow and Alaskaassuming:
(a) The company-widerate.
(b) The departmentalrates.
4. Compute the totalcosts per unit of MaxiFlow and Alaska assuming:
(a) The company-widerate.
(b) The departmentalrates.
5. Is one productaffected more than the other by use of departmental rates ratherthan a company-wide rate? Why or why not?
