Bus 630 week 2 assignment auerbach enterprises

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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

Details

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:

Details

Maxi Flow

Alaska

Radiator parts fabrication

28

16

Radiator assembly weld and test

30

74

Compressor parts fabrication

32

8

Compressor assembly and test

26

66

Total

116

164

 

 

Required: 

1. Compute the departmental overhead rates using machine hours as the cost driver. 

2. Compute a company-wide overhead rate using machine hours as the cost driver. 

3. Compute the overhead costs per batch of MaxiFlow and Alaska assuming: 

(a) The company-wide rate. 

(b) The departmental rates. 

4. Compute the total costs per unit of MaxiFlow and Alaska assuming: 

(a) The company-wide rate. 

(b) The departmental rates. 

5. Is one product affected more than the other by use of departmental rates rather than a company-wide 

rate? Why or why not?

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