Question 4 (20 MARKS)

NBC Printer manufactures laser model and an inkjet model through two production departments, Assembly and Spraying. The company is focuses on instituting environmentally efficient manufacturing processes. Presently, the company uses a single predetermine overhead rate for allocating manufacturing overhead to the two products. However, management is considering using the departmental production department manufacturing overhead rate method. The following manufacturing overhead was budgeted for NBC:

Assembly Department $105,000

Spraying Department $300,000

Total $405,000

Direct machine hours were estimated as follows:

Assembly Department 1,500 hours

Spraying Department 3,000 hours

Total 4,500 hours

In addition, the direct machine hours (dmh) used to produce a unit of each product in each department were determined from engineering records, as follows:

Laser Inkjet

Assembly Department 0.25hr 0.50hr

Spraying Department 0.50hr 1.00hr

Total machine hours per unit 0.75hr 1.50hr

Direct material cost per unit 50 100

Required:

a) Determine the per unit manufacturing overhead allocated to the laser model and inkjet model under the single predetermined manufacturing overhead rate, using direct machine hours as allocation base. [3 MARKS]

b) Determine the per unit manufacturing overhead allocated to the laser model and inkjet model under the departmental manufacturing overhead rate, using direct machine hours as allocation base. [6 MARKS]

c) Based on solution (b), determine total manufacturing cost per unit to the laser model and inkjet model. [6 MARKS]

d) Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation. [5 MARKS]