Managerial Recommendation for Auerbach Enterprises Essay

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Auerbach Enterprises is facing challenges in making decision regarding the best option for their overhead rates. Previously, the company was using "company-wide predetermined overhead rates." (Auerbach Enterprises, nd).However, the Auerbach management is considering using the departmental overhead rates starting by next year. Objective of this paper is to use a series of calculation to determine whether the departmental overhead rates accounting principles will be profitable for the company. The first calculation is to determine the departmental overhead rates for the company using machine hours method. The departments will divide the total overhead costs based on the ratio of hours consumed.

Computation of the Departmental overhead rates using the machine hour's method

Department

Overhead costs

Machine Hour

Calculation

Rate

Radiator Part Fabrication

80,000

10,000

80,000 / 10,000

Radiator Weld Assembly, and Test

100,000

20,000

100,000 / 20,000

Compressor parts fabrication

120,000

5,000

120,000 / 5,000

Compressor assembly & Test

180,000

45,000

180,000 / 45,000

Total

480,000

80,000

Based on the outcomes of the calculation, it is revealed that the company department wide rate depends on the number of Machine hours and overhead costs used in that department.

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From the outcome of the calculation, the "Compressor parts fabrication department" records $24 per hour, which is the highest overhead rate Auerbach Enterprises, nd).

2. Computation of the Company-wide overhead rates using the machine hours method

Company

Overhead cost

Machine Hour

Rate

Auerbach Enterprises

480,000

80,000

6

The company-wide overhead rate is $6, which denotes the overhead rate for the company entirely.

3a. Computation of the Company-wide Overheads Costs per Batch of Product MaxiFlow

Department

Overhead Rate

Machine Hour

Cost

Radiator parts fabrication

6

28

Radiator Assembly, weld & test

6

30

Compressor parts fabrication

6

32

Compressor assembly and test

6

26

Total Overheads Costs

$696

3a. Computation of the Company-wide Overheads Costs per Batch of Product Alaska

Department

Overhead Rate

Machine Hour

Cost

Radiator parts fabrication

6

16

96

Radiator Assembly, weld & test

6

74

Compressor parts fabrication

6

8

48

Compressor assembly and test

6

66

Total Overheads Costs

$984

3b. Computation of the Department Overheads Costs per Batch of Product MaxiFlow:

Department

Overhead Rate

Machine Hour

Cost

Radiator.....

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