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

  Total                             4,000

Required: 

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?