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

However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Eclipse:

Direct machine hours were estimated as follows:

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 $q$

per unit

Residential $

per unit

Commercial $

per unit

Residential &

per unit

c$.$ Recommend to management a product costing approach, based on your analyses in $($a$)$ and $($b$).$

The management could consider either multiple production department factory overhead rate method or the single plantwide rate, as both these methods have the same effect on the final costs.