1.
Cost driver:
Cost driver is a method of costing to assign the overhead cost of resources to the number of units produced. It is a reason that causes a change in the cost of an activity. It is factor that establishes the relationship between indirect cost, product and activities performed to manufacture that product.
Overhead rate:
Overhead rate is also known as the indirect cost rate which is used to allocate the indirect cost or overhead cost with the associate product or with the associate department.
To calculate: Manufacturing overhead allocated to each customer in 2014 that uses machine hours as the allocation base.
Given information:
Machine hours of customer UM are 120 hours.
Machine hours of customer HM are 2,800 hours.
Machine hours of customer LA are 1,080 hours.
Total manufacturing
2.
To calculate: Manufacturing overhead allocated to each customer in 2014 using department based manufacturing overhead rates.
Given information:
CAD-design-hours of customer UM are 110 hours.
CAD-design-hours of customer HM are 200 hours.
CAD-design-hours of customer LA are 80 hours.
Total manufacturing overheads for Design department are $39,000.
Engineering hours of customer UM are 70 hours.
Engineering hours of customer HM are 60 hours.
Engineering hours of customer LA are 240 hours.
Total manufacturing overheads for Production department are $29,600.
Machine hours of customer UM are 120 hours.
Machine hours of customer HM are 2,800 hours.
Machine hours of customer LA are 1,080 hours.
Total manufacturing overheads for engineering department are $240,000.
Total quantity of cost driver for engineering department is 4,000 hours.
3.
The allocated overhead for each customer under requirement 1 and 2 and to find which customer was unhappy with the new overhead allocation base.
4.
To define: The use of information by AP from its department-by-department analysis of manufacturing overhead costs.
5.
To find out: The condition under which AP’s managers refines the department costing system into an ABC system.
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Chapter 5 Solutions
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