Problem - Single plantwide factory overhead rate method and multiple production department factory overhead rate method and product cost distortion.
Pear 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 Pear:
|
Assembly Department
|
$207,200
|
|
Testing Department
|
791,800
|
|
Total
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$999,000
|
Direct machine hours were estimated as follows:
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Assembly Department
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3,700 hours
|
|
Testing Department
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7,400
|
|
Total
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11,100 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:
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.