Compute the departmental overhead rates using machine hours as the cost driver.

Bus 630 week 2 assignment auerbach enterprises

Departmental overhead rate can be calculated by dividing total overhead costs (116+164=280) with the machine hours consumed (400). Thus, the departmental overhead rate is 0.7.

This means that for every machine hour utilized, a cost of $0.7 will be incurred in terms of departmental overheads which include indirect labor costs, supplies and materials used in producing components such as radiators and compressors, depreciation of equipment used to fabricate and assemble them etc. The overhead rate obtained should form a basis for decision-making related to job costing or process costing systems employed by the organization. Moreover, it helps managers identify areas where cost savings can be achieved without compromising on quality standards.

It is important to note that this method does not account for variable costs due to different production volumes across departments or varying levels of difficulty associated with certain jobs or processes like radiator assembly and weld test compared to compressor parts fabrication which requires fewer steps and consumes less time . To get an accurate measure of overall operational performance , such factors must also be taken into consideration when calculating the departmental overhead rates . This ensures that all departments are treated fairly while making sure no expense goes unaccounted for. Furthermore , if any discrepancies arise between actual performance results and forecasted ones , these can easily be traced back by comparing past data points with current ones at various points along the production timeline .

In conclusion , measuring departmental overhead rates using machine hours as the cost driver provides organizations with a better understanding of their expenses while helping them make informed decisions regarding resource allocation and budgeting purposes . Nevertheless, it should never stand alone since other elements such as variable costs need to be considered in order ensure accuracy in assessing overall performance indicators throughout each stage of production within any given enterprise.