Automotive Products (AP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $280,000. AP's simple coating 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, 50 AP's controller Doug Smith 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 to 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.) Total machine hours Total manufacturing overhead 280.000 Manufacturing overhead rate 56.00 per machine hour $ 5,000 $ Calculate the overhead allocated to each customer using the simple coating method. (Round your answers to the nearest whole dollar.) Machine Overhead Customer Hours Used Allocated State Motors Janek Motors Mystiland Auto p, and engineering. Interviews with the department personnel and examination of time records yield the following detailed -ely. rma (CIL Requirements d th 1. Data table juir sting arm 2. man 3. adr Usage of Cost Drivers by Customer Contract Manufacturing Janek Mystiland Overhead in 2017 State Motors Motors Auto achi Cost Driver 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? Department Design Engineering $ 150 250 100 CAD-design-hours Engineering-hours 4. 35,000 25,000 220,000 130 100 270 Production Machine-hours 300 3,700 1,000 5. $ 280,000 Total Print Done Print Done Data table Cause-and-Effect Relationship Between Allocation Base and Activity Cost 1 Total Standard Job Special Job 2,200 1,100 $ 1,400 $ 1,700 2 Number of printing jobs 3 Price per job 4 Cost of supplies per job 5 Direct labor costs per job 6 Printing machine-hours per job $ 130 $ 260 $ 170 $ 220 10 10 Indirect costs of operating printing machines 792,000 increase with printing machine-hours $ 7 8 7 Cost of printing machine operations 8 Setup-hours per job 9 Setup costs 10 Total number of purchase orders $ 653,400 Indirect setup costs increase with setup-hours 370 470 11 Purchase order costs S $ 5,000 $ 12 Design costs 13 Marketing costs as a percentage of revenues Indirect purchase order costs increase with number $ 26,880 of purchase orders Design costs are allocated to standard and special jobs based on a special study of the design 37,000 $ 42,000 department 6% $ 297,000 Demand for administrative resources increases with $ 283,360 direct labor costs 6% 14 Administration costs Print Done - More info Requirements interim Kraftprint's simple job-costing system has two direct-cost categories (direct materials and direct labor) and a single indirect-cost pool. Kraftprint operates at capacity and allocates all indirect costs using printing machine-hours as the allocation base. Kraftprint is concerned about the accuracy of the costs assigned to standard and special jobs and therefore is planning to implement an activity-based costing system. Kraftprint's ABC system would have the same direct-cost categories as its simple costing system. However, instead of a single indirect-cost pool there would now be six categories for assigning indirect costs: design, purchasing, setup, printing machine operations, marketing, and administration. 1. Calculate the cost of a standard job and a special job under the simple costing system. 2. Calculate the cost of a standard job and a special job under the activity-based costing system. 3. Compare the costs of a standard job and a special job in requirements 1 and 2. Why do the simple and activity-based costing systems differ in the cost of a standard job and a special job? 4. How might Kraftprint use the new cost information from its activity-based costing system to better manage its business? Print Done Print Done