Driven products (DP) designs and produces automotive parts In 2013, actual manufacturing overhead is $617,200 DP'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 DP's controller Mike Jones realizes that it is time to examine the consumption of overhead resources more closely by adopting an activity based costing (ABC) system He knows that there are three main activities that consume overhead resources design, production, and engineering Interviews with operating personnel and examination of time records yield the following detailed information Usage of Cost Drivers by Customer Contract Manufacturing Bates Hathaway Landon Activity Cost Driver Overhead in 2013 Motors Motors Vehicle Design CAD design hours $78,000 110 200 80 Production Engineering hours 59,200 70 60 240 Engineering Machine hours 480,000 120 2,800 1,080 Total $617,200 Determine the formula needed to calculate overhead using the simple costing method and then calculate DPDP's variable manufacturing overhead rate for 2013 1 Compute the manufacturing overhead allocated to each customer in 2013 using the simple costing system that uses machine hours as the allocation base 2 Compute the manufacturing overhead allocated to each customer in 2013 using activity 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 activity based rates are used to price contracts, which customer(s) will be unhappy How would you respond to these concerns 4 How else might DP use the information available from its activity based costing analysis of manufacturing overhead costs 5 DP's managers are wondering if they should further refine the ABC system by identifying more activities Under what conditions would it not be worthwhile to further refine the ABC system

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Driven products (DP) designs and produces automotive parts. In 2013, actual manufacturing overhead is $617,200.DP's simple costing system allocates manufacturing overhead to its three customers

Driven products (DP) designs and produces automotive parts. In 2013, actual manufacturing overhead is $617,200.DP'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 DP's controller Mike Jones realizes that it is time to examine the consumption of overhead resources more closely by adopting an activity-based costing (ABC) system. He knows that there are three main activities that consume overhead resources: design, production, and engineering. Interviews with operating personnel and examination of time records yield the following detailed information:

			Usage of Cost Drivers by Customer Contract
		Manufacturing	Bates	Hathaway	Landon
Activity	Cost Driver	Overhead in 2013	Motors	Motors	Vehicle
Design	CAD-design-hours	$78,000	110	200	80
Production	Engineering-hours	59,200	70	60	240
Engineering	Machine-hours	480,000	120	2,800	1,080
Total		$617,200

Determine the formula needed to calculate overhead using the simple costing method and then calculate DPDP's variable manufacturing overhead rate for 2013.

1.Compute the manufacturing overhead allocated to each customer in 2013 using the simple costing system that uses machine-hours as the allocation base.

Compute the manufacturing overhead allocated to each customer in 2013 using activity-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 activity-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns?

How else might DP use the information available from its activity-based costing analysis of manufacturing overhead costs?

DP's managers are wondering if they should further refine the ABC system by identifying more activities. Under what conditions would it not be worthwhile to further refine the ABC system?