Digital Technologies Manufactures Three Types of Computers for a Well

question 4

Essay

Digital Technologies manufactures three types of computers for a well known national brand. The three types are: laptops, desktops, and tablets. Currently, Digital uses a single plant-wide overhead rate to allocate its $1,667,250 of annual manufacturing overhead. Of this amount, $562,000 is associated with laptops, $492,000 is associated with desktops, and $612,750 is associated with tablets. Digital is currently using a total of 22,150 machine hours: 7,500 for laptops, 8,200 for desktops, and 6,450 for tablets. Digital uses machine hours to allocate overhead costs.
Required:
a. Calculate the plant-wide manufacturing overhead rate.
b. Calculate the departmental overhead rate for each of the three departments listed.
c. Which product line(s)have been overcosted by using the plant-wide manufacturing overhead rate? By how much per machine hour? Which product line(s)have been undercosted by using the plant-wide manufacturing overhead rate? By how much per machine hour?

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Definitions:

Profit-maximizing Quantity

The quantity of a product that results in the highest possible profit for the producer, determined by the point where marginal cost equals marginal revenue.

Production Function

A mathematical relation that describes the maximum output of a good derived from different combinations of factors of production.

Cost Per Unit

The total cost incurred in producing, manufacturing, or acquiring a single unit of a specific good or service.

Profit Maximization

The approach a business takes to determine the pricing and output that lead to the utmost profit.