Answer:
A. Per unit overhead allocated to Commercial $960
Per unit overhead allocated to Residential $540
B. Total Costs Commercial$1,100
Total Costs Residential $450
C. Option 2
Explanation:
a. Calculation to Determine the per-unit factory overhead allocated to the commercial and residential motors
First step is to calculate the Plantwide overhead rate
Plantwide overhead rate = 1,080,000 / 9,000
Plantwide overhead rate= $120 per machine hour
Now let calculate the Per unit overhead allocated to Commercial and Residential
Per unit overhead allocated to Commercial = 120 x 8
Per unit overhead allocated to Commercial = $960
Per unit overhead allocated to Residential = 120 x 4.5
Per unit overhead allocated to Residential = $540
b. Calculation to Determine the per-unit factory overhead allocated to the commercial and residential motors
First step is to calculate the Departmental overhead rate in Assembly and Testing
Departmental overhead rate in Assembly = 280,000 / 4,000
Departmental overhead rate in Assembly= $70 per machine hour
Departmental overhead rate in Testing = 800,000 / 5,000
Departmental overhead rate in Testing = $160 per machine hour
Now let calculate the Costs Allocated to Product using Department overhead rate
Costs Allocated to Product using Department overhead rate:
Commercial Residential
Assembly Department 140 210
(2 x 70=140) (3 X 70=210)
Testing Department 960 240
(160 X6=960) (160 X 1.5=240)
Total Costs $1,100 $450
(140+960=$1,100) (210+240=$450)
c. Based on the information given OPTION 2 which says that the management shall tend to consider SINGLE plantwide factory overhead rate methods reason been that this method helps to calculates cost very accurately taking into factor that overheads are evenly applied on basis of direct labor hours. Which is why OPTION 2 will be Recommend to management as a product costing approach, based on the analyses in (a) and (b).
