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BUS 630 Week 5 Middlehurst House Case 9A

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BUS 630 Week 2 Assignment CASE 3A AUERBACH ENTERPRISES
Ashford University
Managerial Accounting
BUS 630
BUS 630 Week 2 Assignment
MaxiFlow requires direct materials costs which total
$135 per unit, while Alaska’s direct materials
requirements total $110 per unit. Direct labor costs per
unit are $75 for MaxiFlow and $95 for Alaska.
Auerbach Enterprises uses machine hours as the cost
driver to assign overhead costs to the air conditioners.
The company has used a company-wide predetermined
overhead rate in past years, but the new controller,
Bennie Leon, is considering the use of departmental
overhead rates beginning with the next year.
The following planning information is available for the
next year for each the four manufacturing departments
within the company:
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 20 at a time. A production batch of 20 units
requires the following number of hours in each
department:

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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
CASE 3A AUERBACH ENTERPRISES Auerbach
Enterprises manufactures air conditioners for
automobiles and trucks manufactured throughout North
America. The company designs its products with
flexibility to accommodate many makes and models of
automobiles and trucks. The company’s two main
products are MaxiFlow and Alaska. MaxiFlow uses a few
complex fabricated parts, but these have been found
easy to assemble and test. On the other hand, Alaska
uses many standard parts but has a complex assembly
and testing process. MaxiFlow requires direct materials
costs which total $135 per unit, while Alaska’s direct
materials requirements total $110 per unit. Direct labor
costs per unit are $75 for MaxiFlow and $95 for Alaska.
Auerbach Enterprises uses machine hours as the cost
driver to assign overhead costs to the air conditioners.
The company has used a company-wide predetermined
overhead rate in past years, but the new controller,
Bennie Leon, is considering the use of departmental
overhead rates beginning with the next year. The
following planning information is available for the next

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year for each the four manufacturing departments within
the company: Overhead Costs Radiator parts
fabrication.............. $ 80,000 Radiator assembly, weld,
and test.... 100,000 Compressor parts fabrication..........
120,000 Compressor assembly and test........ 180,000
Total $480,000 Machine Hours 10,000 20,000 5,000
45,000 80,000
Normally, the air conditioners are produced in batch
sizes of 20 at a time. A production batch of 20 units
requires the following number of hours in each
department: MaxiFlow Radiator parts fabrication...........
28 Radiator assembly, weld, and test....... 30
Compressor parts fabrication......... 32 Compressor
assembly and test......... 26 Total 116 Alaska 16 74 8 66
164
“Auerbach Enterprises uses machine hours as the cost
driver to assign overhead costs to the air conditioners.
The company has used a company-wide predetermined
overhead rate in past years, but the new controller,
Bennie Leon, is considering the use of departmental
overhead rates beginning with the next year.
“(Schneider, 2012). One product is affected more than
the other by use of departmental rates rather than
companywide rate.
“Companies can choose to use the accounting job order
costing method when they have a single product line or
numerous products to manufacture. However, it is less

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