Car Plant (CP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $280,000. CPs 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 CPs controller Duncan 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:

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 CP's manufacturing overhead rate for 2017. (Round your answer to the nearestcent.)

Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.)

Requirement 2. Compute the manufacturing overhead allocated to each customer in 2017 using department-based manufacturing overhead rates. (Abbreviations used: Dept. = Department.)

Determine the formula used to calculate the department-based manufacturing overhead rates:

CP's 2017 manufacturing overhead rates by department are as follows:

Calculate the overhead allocated to each customer, by department, using the departmental manufacturing overhead rates calculated in the previous step. Calculate the total overhead cost for each department and each customer.

Requirement 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? (Pick one of the options that are bold on each statement as one of those is supposed to be the answer.)

Under the simple-costing system, (Hamlet, Leland, United) was likely unhappy about their bill, because the contract appears to have been (Overcosted, undercosted). If the new department-based rates are used to price contracts, (Hamlet, Leland, United) will likely be happier about their bill.

If the new department-based rates are used to price contracts, (Hamlet and Leland, United and Hamlet, United and Leland) will likely be unhappy. This is because their bills under the simple-costing system appear to have been (overcosted, undercosted). Using the department-based rates, their bills will be (higher, lower).

If the new department-based rates are used, CP hould explain to the unhappy customers how the calculation was done, and point out their high use of (Design and Engineering Resources, Production Machine Hours) relative to (Design and Engineering Resources, Production Machine Hours).

Requirement 4. How else might CP use the information available from its department-by-department analysis of manufacturing overhead costs? (Select all that apply.)

Requirement 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?

Manufacturing Overhead in 2017 $ 35,000 25,000 220.000 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours Usage of Cost Drivers by Customer Contract United Hamlet Motors Motors Leland Auto 150 250 130 100 270 300 3,700 1,000 100 280,000 Total Machine Hours Used Overhead Allocated Customer United Motors Hamlet Motors Leland Auto = Manufacturing overhead rate by dept