Question

Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion Pineapple Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, 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 Pineapple: Assembly Department $220,000 Testing Department 809,600 Total $1,029,600 Direct machine hours were estimated as follows: Assembly Department 4,400 hours Testing Department 8,800 Total 13,200 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: Commercial Residential 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 a. Determine the per-unit factory overhead allocated to the Commercial and Residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base. Commercial Motor $ per unit Residential Motor $ per unit b. Determine the per-unit factory overhead allocated to the Commercial and Residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. Commercial Motor $ per unit Residential Motor $ per unit

Answer 1

Answer (a):

As calculated above:

Plant wide overhead rate = $78

Per-unit factory overhead allocated to the Commercial motor under the single plant-wide factory overhead rate method, using direct machine hours as the allocation base = $78 * 1.50 = $117

Per-unit factory overhead allocated to the Residential motor under the single plant-wide factory overhead rate method, using direct machine hours as the allocation base = $78 * 3 = $234

Commercial Motor $117 per unit

Residential Motor $234 per unit

Answer (b):

Calculation of department wise overhead rate based on direct machine hours:

Per-unit factory overhead allocated to the Commercial under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department = 0.50 * $50 + 1 * $92 =$117

Per-unit factory overhead allocated to the residential motor under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department = 1* $50 + 2 * $92 =$234

Commercial Motor $117 per unit

Residential Motor $234 per unit