Reference no: EM132690613
Problem - Single plantwide and multiple production department factory overhead rate methods and product cost distortion
Peach Computer Company manufactures a desktop and portable computer through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Peach:
Assembly Department $210,000
Testing Department 600,000
Total $810,000
Direct machine hours were estimated as follows:
Assembly Department 3,000 hours
Testing Department 6,000
Total 9,000 hours
In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows:
|
|
Desktop
|
Portable
|
|
Assembly Department
|
0.50 dmh
|
1.00 dmh
|
|
Testing Department
|
1.00
|
2.00
|
|
Total machine hours per unit
|
1.50 dmh
|
3.00 dmh
|
Required -
a. Determine the per-unit factory overhead allocated to the desktop and portable computers under the single plantwide factory overhead rate method, using direct machine hours as the allocation base.
b. Determine the per-unit factory overhead allocated to the desktop and portable computers under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department.
c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.