Auerbach Enterprises

Topics: Costs, Variable cost, Economic cost Pages: 5 (709 words) Published: August 3, 2013
BUS 630 Week 2 Assignment
Name
Ashford University
Managerial Accounting
BUS 630
Dr. Barrett
April 14, 2013
BUS 630 Week 2 Assignment

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 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 assembly, weld, and test....... 30 74
Compressor parts fabrication......... 32 8
Compressor assembly and test......... 26 66
Total 116 164

1.    Compute the departmental overhead rates using machine hours as the cost driver.
Departmental Overhead Rates                                               |Radiator Parts Fabrication |\$80,000/10,000 = 8 |  | |Radiator Assembly ,Weld, Test |100,000/20,000 = 5 |  | |Compressor Parts Fabrication |120,000/5,000 = 24 |  | |Compressor Assembly, Test |180,000/45,000 = 4 |  |

2.    Compute a company-wide overhead rate using machine hours as the cost driver.
Total Cost Hours           \$480,000
Total Machine Hours       80,000
\$480,000/80,000 = 6 company-wide overhead rate

3.    Compute the overhead costs per batch of MaxiFlow and Alaska assuming:
(a)  The company-wide rate.

|Radiator parts fabrication |28 hrs. * 6 = 168 |16 hrs. * 6 =   96 | |Radiator assembly, weld, and test |30 hrs. * 6 = 180 |74 hrs. * 6 = 444 | |Compressor parts fabrication |32 hrs. * 6 = 192 |  8 hrs. * 6 =   48 | |Compressor assembly and test |26 hrs. * 6 = 156 |66 hrs. * 6 = 896 | |Total |                     698 |                  1,484 |

(b) The departmental rates.

|Radiator parts fabrication |  |28 hrs.* 8 =    224 |16 hrs. * 8 = 128 | |Radiator assembly, weld, and test |  |30 hrs. * 5 =   150 |74 hrs.* 5 =  370 | |Compressor parts fabrication |  |32 hrs. * 24 = 768 |8 hrs. * 24 = 192 | |Compressor assembly and test |  |26 hrs. * 4 =   104 |66 hrs. * 4 =...