BUS630: Managerial Accounting
June 17, 2013 Auerbach Enterprises
Auerbach Enterprises is an air conditioning company who manufactures air conditioners for automobiles and trucks. Their business provides these products across North America. In evaluating the type of costing method Auerbach Enterprises would benefit from the most, they fall into job order costing system due to the variety of auto and truck air conditioning units they manufacture. Their manufacturing of the units varies as they specialize in unique and individual orders in order to meet the demands of their customers. Their products which have portions of their order which can be assembled in mass still require individualization to fit the distinct trucks or automobiles. In evaluating the cost of the product and analyzing profitability it is important to apply the job order costing system. Each item must be categorized as the direct and indirect labor and manufacturing costs will vary with each output. “Determining the accurate cost of a product is necessary for finding optimal pricing for that product and, more importantly, whether that product can be profitable.” (Tatikonda, 1988). Tatikonda goes on to discuss that accurate inventory is vital to the survival of any organization. Accurate inventory is required in order for management to make the best business decision recommendations to the owners and CEO’s of the organization.
In question one, we will be computing the departmental overhead rates using machines hours as the cost driver. The machine hours as displayed in the table below will be the overhead costs divided by the machine hours. This calculation will allow us to understand the departmental overhead costs by machine hours. The total overhead costs of $480,000 was divided by the total machines hours of 80,000 to equal 6.
Parts Overhead costs Machines Hours Answer
Radiator Parts Fabrication