Bus 630 week 2 assignment
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week2hwdiscussions.pdf
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’s 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’s 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 Costs Machine 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
Required: 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?
BUS630 Week 2 Case Template
Part 1 Department Overhead Rates using machine hours as the cost driver
The example is given for the first item and please complete the calculations for other items.
Overhead
Costs
Machine
Hours
Departmental
Rates
Radiator parts fabrication $ 80,000.00 10,000 $ 8.00
Radiatior assembly, weld,
and test
Compressor parts
fabrication
Compressor assembly
and test
Total $ 480,000.00 80,000
2. Overhead Costs
Machine
Hours
Company-
Wide
Rate
Total $ 6.00
You will divide the Total Overhead Costs by Machines Hours from Part 1 and find the
Company-Wide rate.
Part 3
Compute the overhead costs per batch of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
(b) The departmental rates.
3a.
The example is given for the first item and please complete the calculations for other items.
Maxiflow
Departmental
Rate
Department
Cost
Radiator parts fabrication 28 (given)
$ 8.00
(from Part 1) $ 224.00
Radiatior assembly, weld, and test
Compressor parts fabrication
Compressor assembly and test
Total Batch Cost $
OH Cost per unit
$ 62.30
(Total Batch
Costs/20 units)
Alaska
Departmental
Rate
Department
Cost
Radiator parts fabrication 16 $ 8.00 $ 128.00
Radiatior assembly, weld, and test
Compressor parts fabrication
Compressor assembly and test
Total Batch Cost
OH Cost per unit
$ 47.70
(Total Batch
Costs/20)
3b.
Maxiflow
Company-
wide Rate OH Batch Cost
Total machine hours XX
XX
(machine hours
* Company rate
from part 2)
OH Cost per unit
$ 34.80
(Total Batch
Costs/20 units)
Total machine hours Alaska
Company-wide
Rate OH Batch Cost
OH Cost per unit
$ 49.20
(Total Batch
Costs/20 units)
4a&b
Maxiflow
Depart Rate Company Rate Direct materials Direct labor Overhead
Total Unit Costs $ 272.30 $ 244.80
Alaska
Depart Rate Company Rate
Direct materials
Direct labor
Overhead
Total Unit Costs $ 252.70 $ 254.20
Writeup – complete on your own
