“Auerbach Enterprises uses machine hours as the cost driver to assign overhead costs to the air conditioners. The company has used a company-wide predetermined overhead rate in past years, but the new controller, Bennie Leon, is considering the use of departmental overhead rates beginning with the next year. “(Schneider, 2012). One product is affected more than the other by use of departmental rates rather than companywide rate.
“Companies can choose to use the accounting job order costing method when they have a single product line or numerous products to manufacture. However, it is less costly and less time-consuming if they elect to use process costing when calculating the manufacturing of a single product line. With similarities
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to determine the companywide and departmental costs per unit of Maxiflow and Alaska. Company-Wide Rate: Total Cost per Unit equal direct material Costs plus Direct Labor Costs divided by Number of Units Maxiflow. Direct Materials equal Alaska: 135 Direct Labor Costs equal 75 210 $415 plus $480,000 divided by 40 equal $12,010.38 per unit 110 plus 95 equal 205 210 plus 205 equal $415 Departmental Rate: Radiator Parts Fabrication: $80,000 plus $415 divided by 40 equal $2010.38 per unit Radiator Assembly, Weld, and Test: $100,000 plus 415 divided by 40 equal $2510.38. Compressor Parts Fabrication: $120,000 plus 415 divided by 40 equal $3010.38 Compressor Assembly and Test: $180,000 plus 415 divided by 40 equal $4510.38. So, it seems that the total costs per unit for the company-wide rate is slightly less per unit. The company-wide rate for total cost per unit is $12,010.38, while the total cost per unit for each department is $12, 041.52.“Auerbach Enterprises manufactures air conditioners for automobiles and trucks manufactured throughout North America. The company designs its products with flexibility to accommodate many makes and models of automobiles and trucks. The company’s two main products are MaxiFlow and Alaska.”(Schneider, 2012). The reduction of overhead expenses is one of the sparse areas of corporate cost control that receives few to no