Auerbach Enterprises Manufacturers
Running head: AUERBACH ENTERPRISES 1
Auerbach Enterprises Manufacturers
Moses Parker
BUS 630: Managerial Accounting
Prof. Brian Shaw
February 24, 2015
AUERBACH ENTERPRISES 2
Auerbch Enterprises Manufacturers
In today’s very competitive business environment, it is imperative that organizations choose the most appropriate and effective overhead rate, particularly, because it guides management in its tasks of product pricing, job costing, and budgeting. Businesses can use the single company-wide method or can opt for the departmental method. 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. According to Schneider (2012), “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” (p. 3.3). Moreover, Auerbach Enterprises is trying to make a determination as to whether it would be more appropriate to use the company-wide predetermined overhead rates, or whether it would be more appropriate to switch to using 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 valued at a proportionate share of indirect costs according to some predetermined base.
Auerbach Enterprises Manufacturers
Moses Parker
BUS 630: Managerial Accounting
Prof. Brian Shaw
February 24, 2015
AUERBACH ENTERPRISES 2
Auerbch Enterprises Manufacturers
In today’s very competitive business environment, it is imperative that organizations choose the most appropriate and effective overhead rate, particularly, because it guides management in its tasks of product pricing, job costing, and budgeting. Businesses can use the single company-wide method or can opt for the departmental method. 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. According to Schneider (2012), “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” (p. 3.3). Moreover, Auerbach Enterprises is trying to make a determination as to whether it would be more appropriate to use the company-wide predetermined overhead rates, or whether it would be more appropriate to switch to using 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 valued at a proportionate share of indirect costs according to some predetermined base.
References: Boer, G., & Jeter, D. (1993). What 's new about modern manufacturing? empirical evidence on manufacturing cost changes. Journal of Management Accounting Research, 5, 61. Retrieved from http://search.proquest.com/docview/210171196?accountid=32521 Brunton, N. M. (1988). Evaluation of overhead allocations. Management 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. Management Accounting, 73(9), 40. Retrieved from http://search.proquest.com/docview/229742735?accountid=32521 Schneider, A. (2012). Managerial Accounting: Decision Making for the Service and Manufacturing Sectors. Bridgepoint Education: San Diego, CA.