Wheeler Place (WP) designs and produces automotive parts. In 2017, actual manufacturing overhead is $307,800. WP'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 WP's controller Deon Hunter 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 WP's manufacturing overhead rate for 2017. (Round your answer to the nearest cent) Total manufacturing overhead Total machine hours - Manufacturing overhead rate 307,800 3.800 81.00 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 Compute the manufacturing overhead allocated to each customer in 2017 using the simple costing system that uses machine-hours as the allocation base. Compute the manufacturing overhead allocated to each customer in 2017 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 WP use the information available from its department-by-department analysis of manufacturing overhead costs? WP'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? 4. nd produces automotive parts. In 2017, actual manufacturing overhead is $307,800. WP's simple costing sys hree customers based on machine-hours and prices its contracts based on full costs. One of its customers ha Data Table Usage of Cost Drivers by Customer Contract United Aegean Motors Motors Island Auto Manufacturing Overhead in 2017 39,000 33,200 235,600 95 Department Cost Driver Design CAD-design-hours Engineering Engineering-hours Production Machine-hours Total 195 50 217 150 2,550 1,100 307,800
