Manufacturing Overhead in 2017 Usage of Cost Drivers by Customer Contract Northern Janek Motors Motors Jerdon Auto $ Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours 42.000 115 202 83 85 30,000 240,000 78 237 120 2,800 1,080 Total $ 312.000 1. Roadster Company (RC) designs and produces automotive parts. In 2017, actual manufacturing overhead is $312,000. RC'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 RC's controller Declan 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: (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 RC's manufacturing overhead rate for 2017. (Round your answer to the nearest cent.) (1) (2) Manufacturing overhead rate + per machine hour Calculate the overhead allocated to each customer using the simple costing method. (Round your answers to the nearest whole dollar.) Machine Overhead Customer Hours Used Allocated Northern Motors Janek Motors Jerdon Auto 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: (3) (4) = Manufacturing overhead rate by dept. RC's 2017 manufacturing overhead rates by department are as follows: Manufacturing Overhead Rate Department (by Department) Design per (5) Engineering per (6) Production per (7) 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. Northern Janek Jerdon Motors Auto Total Department Motors Design Engineering Production Total 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? Under the simple-costing system. (8) was likely unhappy about their bill, because the contract appears to have been (9) If the new department-based rates are used to price contracts, (10) will likely be happier about their bill. will likely be unhappy. This is because If the new department-based rates are used to price contracts, (11) Using the department-based rates, their bills under the simple-costing system appear to have been (12) their bills will be (13) If the new department-based rates are used, RC should explain to the unhappy customers how the calculation was done, and point out their high use of (14) relative to (15) Requirement 4. How else might RC use the information available from its department-by-department analysis of manufacturing overhead costs? (Select all that apply.) Other than for pricing, RC can also use the information from the department-based system A. to set targets over time to reduce both the consumption of each indirect resource and the unit costs of the resources. B. to reevaluate employee pay scales. c. to examine and streamline its own operations so that there is maximum value-added from all indirect resources. D. to provide incentives to professional staff Requirement 5. RC'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? O A. If there wasn't much variation among contracts in the consumption of activities within a department OB. If significant costs are incurred on different activities within a department, but each activity has the same cost driver. OC. If a single activity accounts for a sizable proportion of the department's costs. O D. All of the above. 1: Data Table Usage of Cost Drivers by Customer Contract Northern Janek Motors Motors Jerdon Auto 115 202 83 Manufacturing Overhead in 2017 42,000 30,000 240,000 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours 85 78 237 120 2,800 1,080 $ 312,000 Total 2: Requirements 1. Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. 2. Compute the manufacturing overhead allocated to each customer in 2017 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 RC use the information available from its department-by-department analysis of manufacturing overhead costs? 5. RC'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? (1) O Machine hours per customer O Machine hours per department O Manufacturing overhead per customer O Manufacturing overhead per department Total machine hours Total manufacturing overhead (2) O O Machine hours per customer O Machine hours per department O Manufacturing overhead per customer O Manufacturing overhead per department Total machine hours O Total manufacturing overhead (3) O O Machine hours per dept. O Manufacturing overhead per customer O Manufacturing overhead per dept. Total hours per dept. Total machine hours Total manufacturing overhead (4) Machine hours per dept. O Manufacturing overhead per customer O Manufacturing overhead per dept. O Total hours per dept. Total machine hours Total manufacturing overhead (5) O O CAD-design hour O engineering hour O machine hour (6) O O CAD-design hour O engineering hour O machine hour (7) O O CAD-design hour engineering hour O machine hour (8) O Janek O Jerdon Northern (9) O overcosted O undercosted (10) Janek 0 Jerdon Northern (11) O Janek and Jerdon O Northern and Janek O Northern and Jerdon (12) O overcosted O undercosted (13) O higher O lower (14) O design and engineering resources O production machine hours (15) O design and engineering resources O production machine hours