**** PLEASE NOTE: CP OR CC. REQUIREMENTS ARE THE SAME JUST THE NUMBERS (VALUES) ARE CHANGED.****
Car Plant (CP) designs and produces automotive parts. In 2020, actual variable manufacturing overhead is $312,000. CP'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 CP's controller Delane Bailey 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: B (Click the icon to view the information.) Data table Usage of Cost Drivers by Customer Contract Northern Anthony Mystiland Motors Motors Auto Manufacturing Overhead in 2020 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours $ 42,000 115 202 83 85 78 237 30,000 240,000 Production Machine-hours 120 2,800 1,080 $ 312,000 Total 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 CC's manufacturing overhead rate for 2020. (Round your answer to the nearest cent.) Total machine hours Total manufacturing overhead 343,000 Manufacturing overhead rate 68.60 per machine hour $ 5,000 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 United Motors 220 $ 15,092 Hamlet Motors 3,300 $ 1,480'$ 226,380 101,528 Lowell Auto Requirement 2. Compute the manufacturing overhead allocated to each customer in 2020 using department-based manufacturing overhead rates. (Abbreviations used: Dept. = Department.) Determine the formula used to calculate the department-based manufacturing overhead rates: Manufacturing overhead per dept. . Total hours per dept. = Manufacturing overhead rate by dept. CC's 2020 manufacturing overhead rates by department are as follows: Department $ Design Engineering Manufacturing Overhead Rate (by Department) 100 per CAD-design hour 70 per engineering hour 55 per machine hour $ Production $ 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. United Hamlet Lowell Motors Total Department Design Motors 12,000 $ Auto 8,000 $ 1 $ 20,000 $ 40,000 Engineering 5,950 5,460 16,590 28,000 1 12,100 181,500 81,400 275,000 Production $ 30,050 $ 206,960 $ 105,990$ 343,000 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, Hamlet was likely unhappy about their bill, because the contract appears to have been overcosted their bill. If the new department-based rates are used to price contracts, Hamlet will likely be happier about will likely be unhappy. This is because their bills under the simple-costing system appear to have been undercosted . Using the department-based rates, If the new department-based rates are used to price contracts, United and Lowell their bills will be higher . If the new department-based rates are used, CC should explain to the unhappy customers how the calculation was done, and point out their high use of design and engineering resources relative to production machine hours Requirement 4. How else might CC use the information available from its department-by-department analysis of manufacturing overhead costs? (Select all that apply.) Other than for pricing, CC 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. CC'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? A. If a single activity accounts for a sizable proportion of the department's costs. B. If significant costs are incurred on different activities within a department, but each activity has the same cost driver. C. If there wasn't much variation among contracts in the consumption of activities within a department
