Auerbach Enterprise

Auerbach Enterprises

Precious Richey

BUS630: Managerial Accounting (NAH1414A)

Professor – John Kuhn

Date submitted: April 14, 2014

Abstract

It is important for business enterprises to choose the appropriate overhead rate because it aids management with budgeting, job costing and product pricing. Different allocation methods can result in varying figures for the same enterprise. Businesses can use the single company-wide method or can opt for the departmental method. Choosing the method that provides the most accurate results can help businesses remain competitive (Benge, 2014).

Auerbach Enterprises manufactures air conditioners for many makes of both automobiles and trucks. The two main products are MaxiFlow and Alaska. Currently, the company uses a company-wide predetermined overhead (OH) rate but is considering using departmental OH rates in the upcoming year. Company-wide OH rates allocate expenses across the entire enterprise. This rate is figured by dividing the total cost of overhead by cost drivers common throughout each department. Department OH rates are calculated for each separate department by dividing the total department overhead budgeted by the budgeted amount of common cost drivers within the department (Schneider, 2012). The purpose of this paper is to calculate the following to determine the most appropriate OH costing rate method: Compute departmental OH rate using machine hours as cost drivers, compute company-wide OH rate using machine hours as the driver, compute OH costs per batch of MaxiFlow and Alaska assuming a) company-wide rate and b) departmental rates, and compute OH costs per unit of MaxiFlow and Alaska assuming a) company-wide rate and b) departmental rates. In addition, determination should be made concerning whether one product is affected more than the other by using departmental rates rather than a company-wide rate.

Computation of departmental OH rates using machine hours as the cost driver.

Department...