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BUS 630 Week 2 Assignment Auerbach Enterprises (2)

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Accounting

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BUS 630 Week 2 Assignment Auerbach Enterprises
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
Details
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:
Details
Maxi Flow
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
Required:
1. Compute the departmental overhead rates using machine hours as the cost driver.
2. Compute a company-wide overhead rate using machine hours as the cost driver.
3. Compute the overhead costs per batch of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
(b) The departmental rates.
4. Compute the total costs per unit of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
(b) The departmental rates.
5. Is one product affected more than the other by use of departmental rates rather than a company-wide
rate? Why or why not?

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1. Compute the departmental overhead rates using machine hours as the cost
driver.
Solution:
Department overhead rate = Total departmental overhead costs/Machine hours of
respective department
Total departmental
Machine hours of
Departmental
overhead costs
respective department
overhead rates
(a)
(b)
(a) divided by (b)
$80,000
10,000
$8.00
per machine hour
$100,000
20,000
$5.00
per machine hour
$120,000
5,000
$24.00
per machine hour
$180,000
45,000
$4.00
per machine hour
SOLUTION:
1)
The total overhead cost will be divided between two departments MaxiFlow and Alaska in the ratio of hours
consumed.
Particulars
Cost
MaxiFlow
Alaska
Radiator Parts Fabrication
$
80,000.00