Peach Computer Company manufactures a desktop and portable computer through two
ID: 2449221 • Letter: P
Question
Peach Computer Company manufactures a desktop and portable computer through two production departments, Assembly and Testing. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering using the multiple production department factory overhead rate method. The following factory overhead was budgeted for Peach:
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 per-unit factory overhead allocated to the desktop and portable computers under the single plantwide factory overhead rate method, using direct machine hours as the allocation base.
b. Determine the per-unit factory overhead allocated to the desktop and portable computers under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department.
c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.
Assembly Department $213,200 Testing Department 795,400 Total $1,008,600Explanation / Answer
(a) Per unit factory overhead under single planwise factory overheadmethod:
Desktop =1008600/12300*1.5/4.5=27.33 per unit
Portable=1008600/12300*3/4.5=54.67 per unit
(b) Per unit factory overhead under multiple factory overheadmethod:
Desktop=
Assembly department=213200/1008600*4100/12300*.50/1.5=.023 per unit
testing department=795400/1008600*8200/12300*1/1.5=.35 per unit
there for total factory over head of Desktop=.373 perunit
Portable=
Assembly department=
213200/1008600*4100/12300*1/3=.023 per unit
testing department=795400/1008600*8200/12300*2/3=.35 per unit
there for total factory over head of portable=.373 perunit
(c) the overhead of desktop &portable is less under multiple factory overhead rate method.
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