Auerbach Enterprises Overhead Cost Data
Sandra Rhames-Smith
BUS630
Instructor: Hector Iweka
November 23, 2015
Auerbach Enterprises Overhead Cost Data
This preliminary report is for Auerbach Enterprises a leading manufacturer throughout North America that creates air conditioners for cars and trucks. Included is the departmental overhead rate, cost drivers, machine hours that are to be allotted using a job order cost system. The prerequisite for this projection will include direct material, direct labor cost, department-wide rates and company-wide rates. As noted in Case 3A - Auerbach Enterprises, “The following planning information is available for the next year for each the four manufacturing departments within the company.” (Ashford.edu …show more content…
Products MaxiFlow Alaska
Company-Wide
Radiator Parts Fabrication 28 hours x 6 = 168 16 hours x 6 = 96
Radiator Assembly, Weld, and Test 30 hours x 6 = 180 74 hours x 6 = 444
Compressor Parts Fabrication 32 hours x 6 = 192 8 hours x 6 = 48
Compressor Assembly and Test 26 hours x 6 = 156 66 hours x 6 = 396 Total 696 984
(b) The departmental rates.
Products MaxiFlow Alaska
Departmental Rates
Radiator Parts Fabrication 28 hours x 8 = 224 16 hours x 8 = 128
Radiator Assembly, Weld, and Test 30 hours x 5 = 150 74 hours x 5 = 370
Compressor Parts Fabrication 32 hours x 24 = 768 8 hours x 24 = 192
Compressor Assembly and Test 26 hours x 4 = 104 66 hours x 4 = 264 Total 1,246 954
Compute the total costs per unit of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
Products MaxiFlow Alaska Direct Material $135.00 $110.00
Direct Labor $75.00 $95.00
Radiator Parts Fabrication $168.00 $96.00
Radiator Assembly, Weld, and Test $180.00 $444.00
Compressor Parts Fabrication $192.00 $48.00
Compressor Assembly and Test $156.00 …show more content…
This will be an increase of $550.00 per unit, which will increase the end cost to the consumer. However, the Alaska product will decrease by $30.00 using the departmental rate versus using the company-wide rate per unit. Therefore, the MaxiFlow will be largely affected by changing to the departmental rate structure to assess cost.
In conclusion, the new controller, Bennie Leon’s decision to change the company’s cost system analysis to the departmental overhead rate will be more efficient and will give the organization a more accurate detailed cost breakdown per product. According to the article, Departmental and Manufacturing Overhead vs. Single Overhead Rates, “Knowing what overhead costs are incurred in what departments within the business gives management a clearer understanding of how to price individual products and service competitively.” (Benge 2015). Connecting cost by departments will afford the company the ability to analyze, project, manage and assess the total cost associated with a product. In addition, the company will be in a better position to forecast profit and assign pricing for individual
Sandra Rhames-Smith
BUS630
Instructor: Hector Iweka
November 23, 2015
Auerbach Enterprises Overhead Cost Data
This preliminary report is for Auerbach Enterprises a leading manufacturer throughout North America that creates air conditioners for cars and trucks. Included is the departmental overhead rate, cost drivers, machine hours that are to be allotted using a job order cost system. The prerequisite for this projection will include direct material, direct labor cost, department-wide rates and company-wide rates. As noted in Case 3A - Auerbach Enterprises, “The following planning information is available for the next year for each the four manufacturing departments within the company.” (Ashford.edu …show more content…
Products MaxiFlow Alaska
Company-Wide
Radiator Parts Fabrication 28 hours x 6 = 168 16 hours x 6 = 96
Radiator Assembly, Weld, and Test 30 hours x 6 = 180 74 hours x 6 = 444
Compressor Parts Fabrication 32 hours x 6 = 192 8 hours x 6 = 48
Compressor Assembly and Test 26 hours x 6 = 156 66 hours x 6 = 396 Total 696 984
(b) The departmental rates.
Products MaxiFlow Alaska
Departmental Rates
Radiator Parts Fabrication 28 hours x 8 = 224 16 hours x 8 = 128
Radiator Assembly, Weld, and Test 30 hours x 5 = 150 74 hours x 5 = 370
Compressor Parts Fabrication 32 hours x 24 = 768 8 hours x 24 = 192
Compressor Assembly and Test 26 hours x 4 = 104 66 hours x 4 = 264 Total 1,246 954
Compute the total costs per unit of MaxiFlow and Alaska assuming:
(a) The company-wide rate.
Products MaxiFlow Alaska Direct Material $135.00 $110.00
Direct Labor $75.00 $95.00
Radiator Parts Fabrication $168.00 $96.00
Radiator Assembly, Weld, and Test $180.00 $444.00
Compressor Parts Fabrication $192.00 $48.00
Compressor Assembly and Test $156.00 …show more content…
This will be an increase of $550.00 per unit, which will increase the end cost to the consumer. However, the Alaska product will decrease by $30.00 using the departmental rate versus using the company-wide rate per unit. Therefore, the MaxiFlow will be largely affected by changing to the departmental rate structure to assess cost.
In conclusion, the new controller, Bennie Leon’s decision to change the company’s cost system analysis to the departmental overhead rate will be more efficient and will give the organization a more accurate detailed cost breakdown per product. According to the article, Departmental and Manufacturing Overhead vs. Single Overhead Rates, “Knowing what overhead costs are incurred in what departments within the business gives management a clearer understanding of how to price individual products and service competitively.” (Benge 2015). Connecting cost by departments will afford the company the ability to analyze, project, manage and assess the total cost associated with a product. In addition, the company will be in a better position to forecast profit and assign pricing for individual