Parts World (PW) designs and produces automotive parts. In 2020, actual variable manufacturing overhead is $318,000. PW'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 PW's controller Duncan Gilbert 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 2020 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 PW's manufacturing overhead rate for 2020. (Round your answer to the nearest cent.) Manufacturing overhead rate per machine hour Data table Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours Total Manufacturing Overhead in 2020 $ 38,000 $ 30,000 250,000 318,000 Usage of Cost Drivers by Customer Contract Pacific Motors 115 85 220 Holden Motors 202 78 3,300 Jerdon Auto 83 237 1,480 Requirements 1. 2. 3. 4. 5. Compute the manufacturing overhead allocated to each customer in 2020 using the simple costing system that uses machine-hours as the allocation base. Compute the manufacturing overhead allocated to each customer in 2020 using department-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 department-based rates are used to price contracts, which customer(s) will be unhappy? How would you respond to these concerns? How else might PW use the information available from its department-by-department analysis of manufacturing overhead costs? PW'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?