Automotive Products (AP) designs, manufactures, and sells automotive parts. It has 3 main operating departments: design, engineering, and production.
1.Design ñ the design of parts, using state of the art, computer-aided design (CAD) equipment
2. Engineering ñ the prototyping of parts and testing of their specifications
3. Production ñ the manufacture of parts
For many years, AP had long-term contracts with main automobile assembly companies. These contracts had large production runs. APís costing system allocates variable manufacturing overhead on the basis of machine-hours. Real variable manufacturing overhead costs for 2001were Rs.308,600. AP had 3 contracts in 2001, and its machine-hours used in 2001 were assigned as follows:
United Motors 120
Holden Motors 2,800
Leland Vehicle 1,080
1. Calculate the plantwide variable manufacturing overhead rate for 2001.
2. Calculate the variable manufacturing overhead allocated to each contract in 2001.
3. What conditions must hold for machine-hours to give an accurate estimate of the variable manufacturing overhead incurred on every individual contract at AP in 2001?