Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $296,100. AP's simple costing system allocates 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 noncompetitive prices, so AP's controller Doug Everett realizes that it is time to examine the consumption of overhead resources more closely. He 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: (Click the icon view the information.) Read the requirements. ... Requirement 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Determine the formula needed to calculate overhead using the simple costing method and then calculate AP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) Manufacturing overhead rate per machine hour Machine hours per customer Machine hours per department Manufacturing overhead per customer Manufacturing overhead per department Total machine hours Total manufacturing overhead Requirements 1. 2. 3. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. Comment on your answers in requirements 1 and 2. Which customer do you think was complaining about being overcharged in the simple system? If the new department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? How else might AP use the information available from its department-by-department analysis of manufacturing overhead costs? AP's managers are wondering if they should further refine the department-by-department costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system? 4. 5. Data Table Data Table Usage of Cost Drivers by Customer Contract Eastern Hamlet Motors Motors Jerdon Auto Manufacturing Overhead in 2017 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours $ 44,100 120 210 90 85 75 260 42,000 210,000 Production Machine-hours 130 2,400 970 $ 296,100 Total
