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Question: 5-21 Plant-wide, department, and ABC indirect cost...

5-21 Plant-wide, department, and ABC indirect cost rates. Roadster Company (RC) designs and pro- duces automotive parts. In 2017, actual variable manufacturing overhead is $280,000. RCs simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so RCs controller Matthew Draper realizes that it is time to examine the consump- tion of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information:

Department: Cost Driver Manufacturing Overhead in 2017 Southern Motors Caesar motors Jupiter Auto

Design CAD- design hours 35,000 150 250 100

Production Engineering hours 25,000 130 100 270

Engineering Machine hours 220,000 300 3,700 1,000

Total 280,000

5. RCs managers are wondering if they should further refine the department-by-department costing sys- tem into an ABC system by identifying different activities within each department. Under what condi- tions would it not be worthwhile to further refine the department costing system into an ABC system?

Question: 5-21 Plant-wide, department, and ABC indirect cost...

5-21 Plant-wide, department, and ABC indirect cost rates. Roadster Company (RC) designs and pro- duces automotive parts. In 2017, actual variable manufacturing overhead is $280,000. RCs simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged noncompetitive prices, so RCs controller Matthew Draper realizes that it is time to examine the consump- tion of overhead resources more closely. He knows that there are three main departments that consume overhead resources: design, production, and engineering. Interviews with the department personnel and examination of time records yield the following detailed information:

Department: Cost Driver Manufacturing Overhead in 2017 Southern Motors Caesar motors Jupiter Auto

Design CAD- design hours 35,000 150 250 100

Production Engineering hours 25,000 130 100 270

Engineering Machine hours 220,000 300 3,700 1,000

Total 280,000

5. RCs managers are wondering if they should further refine the department-by-department costing sys- tem into an ABC system by identifying different activities within each department. Under what condi- tions would it not be worthwhile to further refine the department costing system into an ABC system?

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