Reference no: EM133335553

REQUIREMENT

Eclipse Motor Company manufactures two types of specialty electric motors, a commercial motor and a residential motor, 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 Eclipse:

Assembly Department $280,000
Testing Department 800,000
Total $1,080,000

Direct machine hours were estimated as follows:

Assembly Department 4,000 hours
Testing Department 5,000
Total 9,000 hours

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:

Commercial Residential
Assembly Department 2.0 dmh 3.0 dmh
Testing Department 6.0 1.5
Total machine hours per unit 8.0 dmh 4.5 dmh

Question 1: Determine the per-unit 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 $fill in the blank 1 per unit
Residential $fill in the blank 2 per unit

Question 2: Determine the per-unit factory overhead allocated to the commercial and residential motors under the multiple production department factory overhead rate method, using direct machine hours as the allocation base for each department. Commercial $fill in the blank 3 per unit Residential $fill in the blank 4 per unit

Question 3: Recommend to management a product costing approach, based on your analyses in (a) and (b).

1. The management should consider multiple production department factory overhead rate methods, because this method calculates the cost more accurately and considers the fact that commercial products use more costly overheads than residential products.