Answer:
a. Single Plant wide Factory Overhead Rate = $ 140 per machine hour
Overhead Rate of Assembly Department $ 120 per machine hour
Overhead Rate of Testing Department= $ 150 per unit per machine hour.
Total Overhead per Unit Commercial $ 588 Residential $ 462
Explanation:
Pineapple Motor Company
Assembly Department Factory Overhead 360,000
Testing Department Factory Overhead 900,000
Total Factory Overhead 1,260,000
Direct machine hours were estimated as follows:
Assembly Department 3,000 hours
Testing Department 6,000
Total 9,000 hours
Commercial Residential
Assembly Department 1.4 dmh 1.1 dmh
Testing Department 2.8 2.2
Total machine hours per unit 4.2 dmh 3.3 dmh
Single Plant wide Factory Overhead Rate = Total Factory Overhead 1,260,000/Total 9,000 hours
a. Single Plant wide Factory Overhead Rate = $ 140 per machine hour
Overhead Allocated to Assembly Department = No of Hours * Rate
= 3000 * $ 140 = $ 420,000
Overhead Allocated to Testing Department = No of Hours * Rate
= 6000 * $ 140 = $ 840,000
b. Overhead Rate of Assembly Department = Factory Overhead / Machine Hours= 360,000/3,000 hours = $ 120 per machine hour
Overhead Rate of Testing Department= Factory Overhead / Machine Hours= 900,000/ 6000 hours= $ 150 per unit per machine hour.
Overhead Allocated
Commercial Residential
Assembly Department 1.4 *120 1.1 dmh *120
168 132
Testing Department 2.8*150 2.2*150
<u> 420 330 </u>
<u>Total Overhead per Unit $ 588 $ 462 </u>
c. ABC approach is better as it gives an estimate of the overhead per unit both for the Commercial and Residential department using the assembly and testing overheads rates separately. The single plant wide rate gives a mere estimate of the overall costs.
