=+6-29 KKK Plant-wide, department and ABC indirect cost rates OBJECTIVES 2, 3, 5, 7 Motion Products (MP) designs and produces car parts. In 2013, actual variable manufacturing overhead is $308600. MP’s simple costing system allocates variable 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 non-competitive prices, so MP’s management accountant, Grace Harvey, realises that it is time to examine the consumption of overhead resources more closely. She 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:

Chapter 6: Activity-based costing and activity-based management 245 M06_HORN3377_02_LT_C06.indd 245 2/09/13 3:26 PM 1

2 3

4 5

6 A B C D E F United Motors Holden Motors Nissan Vehicle Design CAD-design hours Production Engineering hours Engineering Machine-hours 120

$308 600

$ 39 000 latoT Department Cost driver Variable manufacturing overhead in 2013 Usage of cost drivers by customer contract 110 200 80 70 60 240 2800 1080 29 600 240 000 Required 1 Calculate the variable manufacturing overhead allocated to each customer in 2013 using the simple costing system that has machine-hours as the cost-allocation base.