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# The Messenger Fones Company designs and manufactures cellphones. The company currently off

The Messenger Fones Company designs and manufactures cellphones. The company currently offers two models; the T328 and theSS356. The company has three operating departments: design,engineering and production. In the past, the company has beenallocating the manufacturing overhead based on machine hours.However, Kayla Rined, the product manager of T328, has a hunch thattheir current method of using only machine hours as a costallocation base is resulting in the allocation of too much overheadcosts to her product. She has proposed that the company use the ABCsystem to cost products.

In 2010, the actual manufacturing overhead was \$211,000. Thefollowing indicates the total amount of machine hours used for theproduction of each cell phone model in 2010.

 Machine Hours T328 2,400 hours SS356 2,500 hours Total Machine Hours 4,900 hours

Do not enter dollar signs or commas in the input boxes.

a) Calculate the manufacturing overhead cost allocation rate usingmachine hours.

b) Determine the manufacturing overhead allocated to each modelusing the manufacturing overhead cost allocation rate determined inpart (a).

c) The Messenger Fones Company is considering changing theircosting system by tracing manufacturing overhead costs to the threeoperating activities. The following is the amount of manufacturingoverhead costs traceable to the designing, engineering andproduction activities.

 Operating Areas Cost Drivers Total Costs Designing Number of design hours \$73,000 Engineering Number of engineering hours \$51,000 Production Number of machine hours \$61,000 Total \$185,000

The total cost allocation units used for each product line are:

 Cost Allocation Base T328 SS356 Total Design hours 1,400 1,900 3,300 Engineering hours 1,700 2,100 3,800 Machine hours 2,400 2,500 4,900

d) Was Kayla Rined&#39;s hunch about the allocation of too muchoverhead costs to her product right? AnswerNoYes