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It might set targets over time to reduce both the

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Unformatted text preview: ontrast, the Ho lden Motors contract uses less of design (51%) and engineering (16%) than o f machine­hours (70%). Hence, the use of department rates will report lower indirect costs for Holden Motors than does a plantwide rate. Holden Motors was probably co mplaining under the use of the simple system because it s contract was being overcosted relat ive to its consumpt ion o f MOH resources. United, on the other hand was having its contract undercosted and underpr iced by the simple system. Assuming that AP is an efficient and co mpetit ive supplier, if the new department­based rates are used to price contracts, United will be unhappy. AP should explain to United how the calculat ion was done, and po int out United’s high use of design and engineering resources relat ive to production machine hours. Discuss ways of reducing the consumpt ion o f those resources, if possible, and show willingness to partner with them to do so. If the price rise is go ing to be steep, perhaps offer to p...
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