Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion

Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse:

Assembly Department                      $280,000

Testing Department                           $800,000

Total                                                     $1,080,000

Direct machine hours were estimated as follows:

Assembly Department                 4,000 hours

Testing Department                      5,000 hours

Total                                                 9,000 hours

In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows:

                                                               Commercial                      Residential

Assembly Department                               2.0 dmh                           3.0 dmh

Testing Department                                    6.0                                    1.5

Total machine hours per unit                     8.0 dmh                             4.5 dmh

Questions.

a. Determine the per-unit factory overhead allocated to the commercial and residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base.

Commercial     $________ per unit

Residential       $________ per unit

b. Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department.

Commercial        $_________ per unit

Residential          $__________ per unit