29 Dec Prairie Wolf (PW) designs and produces car parts.
Prairie Wolf (PW) designs and produces car parts. In 2015, actual variable manufacturing overhead is $400,000. PW’s simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged non-competitive prices, so you as PW’s management accountant, realizes that it is time to examine the consumption of overhead resources more closely. You know that there are three main departments that consume overhead resources: Design, Production and Engineering. Interviews with the department personnel and examination of time records yield the following detailed information: Department Cost driver Variable manufacturing overhead 2015 Usage of cost drivers by customer contract United Motors Alpha Motors Beta Motors Design CAD-design hours $28,000 110 200 80 Production Engineering hours $40,000 60 240 370 Engineering Machine-hours $230,000 140 6708 1080 Total $298,000 XXXX is the last four digits of your student ID Requirements: Your report must at least cover the following parts: (1) What is the variable manufacturing overhead allocated to each customer in 2015 using the simple costing system that has machine-hours as the cost-allocation base? (2) What is the variable manufacturing overhead allocated to each customer in 2015 using departmental based variable manufacturing overhead rates? (3) Which customer do you think was complaining about being overcharged in the simple system? Which customer do you think will be unhappy in the departmental based rates being used to price contracts? How would you respond to these concerns? (4) How else might PW use the information available from its department-by-department analysis of variable manufacturing overhead costs? (5) PW’s managers are wondering if they should further refine the department-bydepartment costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to refine further the department costing system into an ABC system? (6) PW’s variable manufacturing overhead for engineering department has increased by 50% in 2015 with little increase in machine hours. The management believes that there are significant idle hours in the machine operators in engineering department. Provide two effective recommendations to PW’s engineering department on how to improve the productivity of the machine operators.