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Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Pineapple Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Pineapple: Assembly Department Testing Department $232,200 877,200 Total $1,109,400 Direct machine hours were estimated as follows: Assembly Department Testing Department 4,300 hours 8,600 Total 12,900 hours In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows: Commercial Residential 1.00 dmn Assembly Department Testing Department 0.50 dmh 1.00 2.00 Total machine hours per unit 1.50 dm 3.00 dm a. Determine the per-unit factory overhead allocated to the Commercial and Residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base. Commercial Motor per unit Residential Motor per unit b. Determine the per-unit factory overhead allocated to the Commercial and Residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. Commercial Motor per unit Residential Motor per unit C. Recommend to management a product costing approach, based on your analyses in (a) and (b). The factory overhead determined under the single plantwide factory overhead rate and multiple production department factory overhead rate methods are the same This is because the ratio of direct machine hours used by each product from the two departments is the same . However, the two production department overhead rates are different . Thus, Peach should consider remaining with the easier single plantwide factory overhead rate method in this situation. Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows: 1 Assembly Department 2 Test and Pack Department $231,700.00 150,420.00 $382,120.00 3 Total The direct labor information for the production of 7,945 units of each product is as follows: Department Assembly Test and Pack Blender 840 dih 2,525 dih Toaster oven 2.470 745 Total 3,310 dih 3,270 dih Blenders Allocation- Activity Base Activity Activity Usage Rate Cost Assembly Department 840 dlh $70.00 Idilih $58,800 Test and Pack Department 2,525 dlh $46.00 Idih 116,150 Total $174,950 Units Factory overhead cost per unit Toaster Ovens Allocation- Activity Base Activity Activity Usage Rate = Cost Assembly Department dih Vdih $ $ $ Test and Pack Department dih Vdih Total $ Units Factory overhead cost per unit $ Four Finger Appliance Company manufactures small kitchen appliances. The product line consists of blenders and toaster ovens. Four Finger Appliance presently uses the multiple production department factory overhead rate method. The factory overhead is as follows: 1 Assembly Department 2 Test and Pack Department $268,294.00 199,489.00 $467,783.00 3 Total The direct labor information for the production of 8,365 units of each product is as follows: Department Assembly Test and Pack Blender 665 dlh 1,960 dlh Toaster oven 2,530 890 Total 3,195 dlh 2.850 dlh Complete the Activity Table for blenders. a. Determine the three activity rates (assembly, test and pack, and setup). Enter these rates in the Activity Rate column." b. Determine the total factory overhead and factory overhead per unit allocated to blenders product using the activity rates in (a)." "If required, round all per-unit answers to the nearest cent. Blender Activity Activity Base Activity Activity Usage Rate Cost Assembly activity 665 dih $59 Idih $39,235 Test and pack activity 1,960 dlh $42 idth 82,320 Setup activity 121 setups $979 Isetup 118,459 Total $240,014 Units 8,365 Factory overhead cost per unit $28.69 Toaster Oven Activity- Activity Base Activity Activity Usage Rate Cost Assembly activity 2,530 dlh $ Idih $ Test and pack activity 890 dlh $ Idih Setup activity setups $ Isetup Total $ Units Factory overhead cost per unit $
