XYZ Automotive is supplying the Rear Rail Assembly panel for GM Cobalt. Currently XYZ Automotive has been using a overhead of $312500 per month. The latest cost management initiative at the company helped them to reduced the overhead by 20% GM Rear Rail AssemblyWorking one shift for five days a week, the direct labor hours are calculated based on 40 hours a week. The new wage policy adopted at XYZ put the total labor wages at $69000 per month. The total direct Rail Material cost used is $140000. There are three stamping and one welding operation involved in the Rear Rail Assembly Panel. Welding operation run twice as fast as any stamping station, thus making the weld station run for half day while stamping is running for the whole day Rail The main rail utilizes $56 worth of material while been worked for 17 machine hours in stamping. A $50 of direct labor for 12 hours of direct labor is also incurred. Based on the current changes in the market conditions XYZ Automotive would like to recalculate the manufacturing cost for the main rail (not the rail assembly) and would like to know what overhead absorption rate they should use based on their manufacturing cost for their main rail. You are been hired as a consultant by XYZ to help them make this decision, you will be reporting to the plant manager.
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