costacctg13_sm_ch05

Incontrasttheho lden motors contract uses less of

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Unformatted text preview: ted Motors a. Department rates (Requirement 2) b. Plantwide rate (Requirement 1) Ratio of (a) ÷ (b) $23,800 $ 9,258 2.57 Holden Motors $192,800 $216,020 0.89 Leland Vehicle $92,000 $83,322 1.10 The variable manufacturing overhead allocated to United Motors increases by 157% under the department rates, the overhead allocated to Holden decreases by about 11% and the overhead allocated to Leland increases by about 10%. The three contracts differ sizably in the way they use the resources of the three departments. The percentage of total driver units in each department used by the co mpanies is: Cost Department Driver Design CAD­design hours Engineering Engineering hours Production Machine hours United Motors 28% 19 3 Holden Motors 51% 16 70 Leland Vehicle 21% 65 27 The United Motors contract uses only 3% of total machines hours in 2004, yet uses 28% of CAD design­hours and 19% of engineering hours. The result is that the plantwide rate, based on machine hours, will great ly underest imate the cost of resources used on the United Motors contract. This explains the 157% increase in indirect costs assigned to the United Motors contract when department rates are used. In c...
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This note was uploaded on 10/11/2010 for the course ACCT 321 taught by Professor Cole during the Spring '10 term at University of Miami.

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