Car Plant (CP) designs and produces automotive parts. In 2014, actual manufacturing overhead is $343,000, CP'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 noncompetitive prices, so CP's controller Duncan Donahue 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:

Usage of Cost Drivers by Customer

Department	Cost Driver	Manufacturing overhead in 2014	State Motors	Aegean Motors	LeLand Auto
Design	Cad-design hours	$40,000	120	200	80
Engineering	Engineering hours	28,000	85	78	237
Production	Machine-hours	275,000	220	3,300	1,480
Total		343,000

Requirements:

1.	Compute the manufacturing overhead allocated to each customer in 2014 using the simple costing system that uses machine-hours as the allocation base.
2.	Compute the manufacturing overhead allocated to each customer in 2014 using department-based manufacturing overhead rates.
3.	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?
4.	How else might CP use the information available from its department-by-department analysis of manufacturing overhead costs?
5.	CP '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?