Auerbach Enterprises manufactures air conditioners for automobiles and trucks manufactured throughout North America. The company designs its products with flexibility to accommodate many makes and models of automobiles and trucks. The company%u2019s two main products are MaxiFlow and Alaska. MaxiFlow uses a few complex fabricated parts, but these have been found easy to assemble and test. On the other hand, Alaska uses many standard parts but has a complex assembly and testing process. MaxiFlow requires direct materials costs which total $135 per unit, while Alaska%u2019s direct materials requirements total $110 per unit. Direct labor costs per unit are $75 for MaxiFlow and $95 for Alaska.
Auerbach Enterprises uses machine hours as the cost driver to assign overhead costs to the air conditioners. The company has used a company-wide predetermined overhead rate in past years, but the new controller, Bennie Leon, is considering the use of departmental overhead rates beginning with the next year.
The following planning information is available for the next year for each the four manufacturing departments within the company:
- Overhead Machine
- Costs Hours
- Radiator parts fabrication $ 80,000 10,000
- Radiator assembly, weld, and test 100,000 20,000
- Compressor parts fabrication 120,000 5,000
- Compressor assembly and test 180,000 45,000
- Total $480,000 80,000
- Normally, the air conditioners are produced in batch sizes of 20 at a time. A production batch of 20 units requires the following number of hours in each department:
- MaxiFlow Alaska
- Radiator parts fabrication 28 16
- Radiator assembly, weld, and test 30 74
- Compressor parts fabrication 32 8
- Compressor assembly and test 26 66
- Total 116 164
Questions: Please tell me how you got the answer in addition to providing the answer. Thanks.
1. Compute the departmental overhead rates using machine hours as the cost driver.
2. Compute a company-wide overhead rate using machine hours as the cost driver.
3. Compute the overhead costs per batch of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
(b) The departmental rates.
4. Compute the total costs per unit of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
(b) The departmental rates.
5. Is one product affected more than the other by use of departmental rates rather than a company-wide rate? Why or why not?