Siemens Electric Motor works

Q5. How does the “new system” trace the overhead costs of order processing and special components handling to the products?
Overhead cost per order (order processing rate) = DM$13800000/65625 =DM$210.29 per order
Overhead cost per special component (special component rate) = DM$19500000/325000= DM$60 per special component In order to adapt the new strategy of SEMW, new costing system uses the order processing rate and special component rate to trace the overhead costs of order processing and special components handling to the specific product. In the first formula, the order processing cost which is removed from support related costs of old system is DM13.8 million. The number of orders that the EMW actually filled is 65625 orders. In the second formula, use total special component cost is DM19.5 million and the number of times to call special components is 325000 times. In this way, the support costs of SEMW would be accurately allocated to each order according to the load on the production support departments rather than the number of special components product.

Q6. Using the information in Exhibit 4, calculate the cost of the five orders (A - E) under the “new” costing system.
In order to calculate of the five orders under the new system, we need to calculate the cost of order processing and special components. Meanwhile, the cost of order processing is driven by the number of orders and special components cost is driven by the number of times processed. As Q5 shown, the cost of each order processed is $210.29 and the cost of per special processed is $60.00.

The calculation of the five orders (A-E) under the new costing system
Table 1:
New system
Base Motor cost
Order processing cost
Special Motor cost
# of different types of special components per motor
Special component cost
Total
cost a A
304
210.29
39.6
1
60
613.89 B
304
210.29
79.2
2
60*2
713.49 C
304
210.29
118.8
3
60*3
813.09 D
304