Pineapple Motor Company manufactures two types of specialtyelectric motors, a commercial motor and a residential motor,through two production departments, Assembly and Testing.Presently, the company uses a single plantwide factory overheadrate for allocating factory overhead to the two products. However,management is considering using the multiple production departmentfactory overhead rate method. The following factory overhead wasbudgeted for Pineapple:
1 | Assembly Department | $330,000.00 |
2 | Testing Department | 750,000.00 |
3 | Total | $1,080,000.00 |
Direct machine hours were estimated as follows:
| | |
| Assembly Department | 3,000 | hours |
| Testing Department | 6,000 | |
| Total | 9,000 | hours |
In addition, the direct machine hours (dmh) used to produce aunit of each product in each department were determined fromengineering records, as follows:
| Commercial | Residential |
| Assembly Department | 1.4 dmh | 0.9 dmh |
| Testing Department | 2.8 | 1.8 |
| Total machine hours per unit | 4.2 dmh | 2.7 dmh |
| Required: |
| a. | Determine the per-unit factory overhead allocated to thecommercial and residential motors under the single plantwidefactory overhead rate method, using direct machine hours as theallocation base. |
| b. | Determine the per-unit factory overhead allocated to thecommercial and residential motors under the multiple productiondepartment factory overhead rate method, using direct machine hoursas the allocation base for each department. |
| c. | (1) Recommend to management a product costing approach, basedon your analyses in (a) and (b). (2) Give a reason for youranswer. |
