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S-Z Plantwide indirect cost rates. Automotive Products (HP) designs, manufactures, and sells automotive parts. Actual variable manufacturing overhead costs for 2012 were $308,600. AP's simple

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S-Z Plantwide indirect cost rates. Automotive Products (HP) designs, manufactures, and sells automotive parts. Actual variable manufacturing overhead costs for 2012 were $308,600. AP'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 regu- larl}r complained of being charged non-competitive prices, so AP's controller, Devon Smith, realizes that it is time to examine the consumption of resources more closely. 3P has three main operating departments: design, engineering, and production. *- Designthe design of parts, using stateoftheart, computeraided design (CAD) equipment. 9 Engineeringthe prototyping of parts and testing of their specications. 'i- Productionthe manufacture of parts. Interviews with the department personnel and examination of time records yield the follow ing detailed information: Use of Cost Drivers by Customer Variable MOI-I in United Holden Leland Department Cost Driver 2012 Motors Motors Motors Design CAD design hours 3 39,{} I 10 zoo 3U Engineering EngiHEering hours 29,6 TU 60' 240 Production Machine hours 240,000 120 2,8[1'0 LUSH Total $3DS,d REQUIRED 1. Using the simple costing system, compute the plantwide variable manufacturing overhead rate for ZUIZ and the variable manufacturing overhead allocated to each contract in 2012. 2. Compute the variable manufacturing overhead rate for 2'312 and the variable manufactur in g overhead allocated to each contract in 2'312 using departmenhbased variable overhead rates. 3. Comment on your answers in requirements I and 2. 'Which customer do you think was complaining about being overcharged in the simple system? If the new departmentbased rates are used to price contracts, which custometts) will be unhappy? How would you respond to these concerns? 4. llow eise might AP use the information available from its department-by-department analysis of variable manufacturing overhead costs? 5. AP's managers are wondering if they should further rene the departmentsbydepartment costing system into an ABC system by identifying different activities within each depart' ment. Under what conditions would it not be worthwhile to further refine the department costing system into an ABC system

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