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Prairie Wolf (PW) designs and produces car parts. In 2015, actual variable manufacturing overhead is $400,000. PWs simple costing system allocates variable manufacturing overhead to its three customers based on machine-hours and prices its contracts based on full costs. One of its customers has regularly complained of being charged non-competitive prices, so you as PWs management accountant, realizes that it is time to examine the consumption of overhead resources more closely. You know that there are three main departments that consume overhead resources: Design, Production and Engineering. Interviews with the department personnel and examination of time records yield the following detailed information:

Department	Cost driver	Variable manufacturing overhead 2015	Usage of cost drivers by customer contract
			United Motors	Alpha Motors	Beta Motors
Design	CAD-design hours	$28,000	110	200	80
Production	Engineering hours	$40,000	60	240	370
Engineering	Machine-hours	$230,000	140	6960	1080
Total		$298,000

Your report must at least cover the following parts:

(1)What is the variable manufacturing overhead allocated to each customer in 2015 using the simple costing system that has machine-hours as the cost-allocation base?

(2)What is the variable manufacturing overhead allocated to each customer in 2015 using departmental based variable manufacturing overhead rates?

(3)Which customer do you think was complaining about being overcharged in the simple system? Which customer do you think will be unhappy in the departmental based rates being used to price contracts? How would you respond to these concerns?

(4)How else might PW use the information available from its department-by-department analysis of variable manufacturing overhead costs?

(5)PWs managers are wondering if they should further refine the departmentbydepartment costing system into an ABC system by identifying different activities within each department. Under what conditions would it not be worthwhile to refine further the department costing system into an ABC system?

(6)PWs variable manufacturing overhead for engineering department has increased by 50% in 2015 with little increase in machine hours. The management believes that there are significant idle hours in the machine operators in engineering department. Provide two effective recommendations to PWs engineering department on how to improve the productivity of the machine operators.

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