Auerbach Enterprises Manufacturers Essay

In todays very warring business environment, it is imperative that g all overnments choose the close take over and effective crash identify, particularly, because it guides instruction in its tasks of product price, job progress toing, and budgeting. Businesses rouse use the single companionship-wide rule or can opt for the departmental manner. Auerbach Enterprises manufactures dividing line conditi iodiners for many makes of both automobiles and trucks. The two briny products be MaxiFlow and Alaska. Currently, the society uses a company-wide predetermine operating expense (OH) ordain but is considering use departmental OH ranges in the future year. Company-wide OH esteems allocate expenses crossways the stallion try. This rate is figured by dividing the summarize monetary value of operating monetary value by price device drivers common throughout each department. harmonise to Schneider (2012), segment OH rates are deliberate for each separate departme nt by dividing the total department hit budgeted by the budgeted amount of common apostrophize drivers at bottom the department (p. 3.3).Moreover, Auerbach Enterprises is trying to make a determination as to whether it would be more than than admit to use the company-wide predetermined strike rates, or whether it would be more appropriate to switch to utilize departmental overhead rates. As such, this paper will be making calculations to determine the most appropriate overhead costing rate method according to Brunton (1998) The easiest method is to apply the plant-wide, or blanket rate. Parts are set at a pro atomate theatrical role of in show cost according to rough predetermined base. One disadvantage of this method rises when production processes differ significantly for contrary part. Parts processed in departments that fall in low overhead expenses are valued and priced proportionately the same as split produced in departments with high overhead expenses.A s econd disadvantage is that all split do non necessarily air a portion of indirect cost as part of their value because one base is used in the parcelling process (p. 22). Further, a determination should be made concerning whether one product is modify more than the other by use departmental rates rather than a company-wide rate. Computation of departmental OH rates apply form hours as the cost driver. department OH Costs / Machine Hours = Department OH consecrate Radiator parts fabrication $80,000 /10,000 = 800% Radiator manufacturing, weld, and scrutiny 100,000 /20,000 = viosterol% Compressor parts fabrication 120,000 /5,000 = 2400% Compressor assembly and test 180,000 /45,000 = 400% numerate 480,000 80,000 4100%Computation of company-wide overhead rate using cable car hours as the cost driver. Company-wide OH cost = 480,000 Total machine hours =80,000 Company-wide OH rate 480,000/80,000 = 6.00AUERBACH ENTERPRISES 4 Computation of the overhead costs per batch of MaxiF low and Alaska assuming (a) The company-wide rate (b) The departmental rates. Maxiflow 6.00 x 116 = 696Alaska 6 x 164 = 984a) MaxiFlow 696/20 = 34.8Alaska 984/20 = 49.2b) MaxiFlow 1246/20 = 62.3Alaska 954/20 = 47.7Departmen MaxiFlow hours Department OH rate Department cost Radiator parts fabrication 28 x 8.00 = $ 224.00 Radiator assembly weld and test 30 x 5.00 =150.00 Compressor parts fabrication 32 x 24.00 = 768.00 Compressor assembly and test 26 x 4.00 = 104.00 Total 116 41.00 1,246.00Department Alaska hours Department OH rate Department cost Radiator parts fabrication 16 x 8.00 = $ 128.00 Radiator assembly weld and test 74 x 5.00 = 370.00 Compressor parts fabrication 8 x 24.00 = 192.00Compressor assembly and test 6 x 4.00 = 264.00 Total 164 41.00 954.00Computation of the OH costs per social whole of MaxiFlow and Alaska assuming (a) The company-wide rate & b) departmental rate. MaxiFlow Departmental invest Company-wide Rate run materials $ 135.00 $ 135.00 Direct crusade $ 75.00 $ 75.00 Overhead 62.30 34.80 Total unit costs 272.30 244.80Alaska Departmental Rate Company-wide rate Direct materials $ 110.00 $ 110.00 Direct labor 95.00 95.00 Overhead 47.70 49.20 Total unit costs 252.70 254.20Is one product affected more than the other by use of departmental rates rather than a company-wide rate? Why or why not? Indeed, the ability to remain competitive lies in how well a company implements cost-cutting solutions at bottom its organization. Accordingly, based on the total unit cost, MaxiFlow appears to be affected more than Alaska by using the departmental rate. Using a company-wide OH rate is purify suited for an enterprise that manufactures a single product. Since Auerbach has multiple departments and manufacturing sections, a more exact overhead rate can be calculated using the departmental OH rate method.Additionally, it is very interesting, and no less compelling that company such as this uses machine hours instead of direct labor as the cost drive r to assign overhead cost this, in and of itself strongly conjure up that it is a company which the majority of its manufacturing is done by machine and not by physical labor. This is uttered by Novin (1992) in the following select he states Direct labor no longer may be the most effective base for applying factory overhead costs to various jobs and products. With todays highly automated systems, labor-related costs constitute only a small portion of total manufacturing costs, and overhead costs instantly correlate more with factors such as machine hours and material quantities. Accordingly, many companies are beginning to identity application bases that better reflect the causes of overhead costs in their unique manufacturing environments (p. 40).Indeed, regardless of whether a company opts to use the company-wide overhead rate, or the departmental overhead rates, the effectiveness of those various systems, to a large extent, depends on the type of organization that utilizes the m. This is expressed by Boer & Jeter (1993), wherein they state, manufacturing cost structures have been changing slowly over time, but sufficient variation across industries exists in the extent and nature of the converts to suggest that no single approach to structuring cost accounting systems is likely to be best for all industrial organizations or sectors (pp. 5, 61).In conclusion, Auerbach compiled planning information in an set about to determine if it would be beneficial to change from a company-wide predetermined overhead rate to a departmental overhead rate. This is heavy because choosing the most appropriate rate helps heed in the budgeting, job costing, and product pricing process. Essentially, it all amounts to the bottom line of a company choosing the method that provides the most accurate results for its business success.ReferencesBoer, G., & Jeter, D. (1993). Whats rising about modern manufacturing? empirical present on manufacturing cost changes. Jou rnal of circumspection Accounting Research, 5, 61. Retrieved from http//search.proquest.com/docview/210171196?accountid=32521 Brunton, N. M. (1988). Evaluation of overhead allocations. guidance Accounting, 70(1), 22. Retrieved from http//search.proquest.com/docview/229737200?accountid=32521 Novin, A. M. (1992). Applying overhead How to find the right bases and rates. watchfulness Accounting, 73(9), 40. Retrieved from http//search.proquest.com/docview/229742735?accountid=32521 Schneider, A. (2012). Managerial Accounting Decision make for the Service and Manufacturing Sectors. Bridgepoint Education San Diego, CA.