Week 2 Assignment – Case 3A
Levi Cushing
BUS 630
Dr. Drakopoulou
March 2, 2015

Auerbach Enterprises has recently got a new controller who is considering changing the which rate to use every year as the company previously used company-wide rate and the new controller would like to use departmental rates. Using a company-wide rate lumps all the products together in to one field, but breaking it out in departmental rates shows more detailed information of each product. Auerbach Enterprises is looking to see if one of their products is more affected by the use of departmental rates rather than a company-wide rate (Education Unlocked, 2014). Since AE has two main products that they deal with that are fairly similar it is good to compare how to two would look when it comes to the two different rate styles. If you examine the appendix you can see several different calculations that will be explained and comprised to see what would be the best solution for AE to take when it comes to which rate to choose for the upcoming year. Looking at Q1 we can determine that the department rate style is reliant on the number of machine hours and the overhead cost of the products by the department those products fall into. Radiator parts fabrication has the lowest overhead cost of the departments, but not the lowest overhead rate cost per hour. The lowest cost per hour is the compressor assembly and test department with a $4.00 overhead rate per hour cost. The highest costing department is the compressor parts fabrication, which has only five thousand machine hours, but an overhead cost of $120,000. Having such a high cost and lower hour rate made the overhead rate per hour cost sky rocket and end up being $24.00 an hour. Looking at Q2 it is pretty straight forward as we were basically computing the company-wide overhead rate. Taking the total overhead cost and machine