Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion
Direct machine hours were estimated as follows:
In addition, the direct machine hours dmh used to produce a unit of each product in each department were determined from engineering records, as follows:
a Determine the perunit factory overhead allocated to the Commercial and Residential motors under the single plantwide factory overhead rate method, using direct machine hours as the allocation base.
Commercial Motor $
per unit
Residential Motor $
per unit
Commercial Motor $
per unit
Residential Motor $
per unit
c Recommend to management a product costing approach, based on your analyses in a and b
The factory overhead determined under the single plantwide factory overhead rate and multiple production department factory overhead rate methods are
i This is because the ratio of direct machine hours used by each
product from the two departments is
method in this situation.
However, the two production department overhead rates are
Thus, Peach should consider
the easier
rate
