When manufacturing products there are many cost to consider. Overhead, direct material, and labor cost all play an essential role in calculating the cost to produce a product. Overhead is made up of indirect cost such as indirect material, indirect labor, insurance, depreciation, and/or utilities (Schneider, 2012). According to the Business dictionary cost drivers causes a change of activity (2013). Factory overhead and cost drivers are synced to one another. Cost driver which are the machines used to produce the product occupies a floor and buildings, in order to work operators are needed, and maintenance must be up kept. All elements are considered to be factory overhead. In Case 3a Auerbach Enterprise, in order to calculate the departmental overhead rates using machine hours as the cost drive, the total cost driver activity for the plant is divided into the total overhead cost to obtain an overhead rate (Schneider, 2012, para. 1)
Departments | Overhead | Hours | Rate | |
Radiator parts fabrication | $80,000 | 10,000 | 800% | |
Radiator, assembly, weld and test | $100,000 | 20,000 | 500% | |
Compressor parts fabrication | $120,000 | 5,000 | 2400% | |
Compressor assembly test | $180,000 | 45,000 | 400% | |
Total | $480,000 | 80,000 | 4,100% | |
The companies over would be 600%, from the data collected.
If a company wanted to commute the overhead cost per batch taking the Overhead rate x Total Machine hours would the Company Wide Batch Cost. Using Auerbach Enterprise two products of Maxi and Alaska multiplying the machines to the rate will give the company’s its batch cost. For example taking radiator part fabrication maxi flow 28 x 8 = 224 batch cost.
Departmental | Machine Hours | Rate |
| Maxi flow | Alaska | |
Radiator parts fabrication | 28 | 16 | 8 |
Radiator assembly, weld and test | 30 | 74 | 5 |
Compressor parts fabrication | 32 | 8 | 24 |
Compressor assembly and test | 26 | 66...