Automotive Products (AP) designs, manufactures, and sells automotive parts. It has 3 main operating departments: design, engineering, and production.
1.Design ñ the design of parts, using state of the art, computer-aided design (CAD) equipment
2. Engineering ñ the prototyping of parts and testing of their specifications
3. Production ñ the manufacture of parts
For many years, AP had long-term contracts with main automobile assembly companies. These contracts had large production runs. APís costing system allocates variable manufacturing overhead on the basis of machine-hours. Real variable manufacturing overhead costs for 2001were Rs.308,600. AP had 3 contracts in 2001, and its machine-hours used in 2001 were assigned as follows:
United Motors 120
Holden Motors 2,800
Leland Vehicle 1,080
Total 4,000
Required:
1. Calculate the plantwide variable manufacturing overhead rate for 2001.
2. Calculate the variable manufacturing overhead allocated to each contract in 2001.
3. What conditions must hold for machine-hours to give an accurate estimate of the variable manufacturing overhead incurred on every individual contract at AP in 2001?