The management of Firebolt Industries Inc. manufactures gasolineand diesel engines through two production departments, Fabricationand Assembly. Management needs accurate product cost information inorder to guide product strategy. Presently, the company uses asingle plantwide factory overhead rate for allocating factoryoverhead to the two products. However, management is consideringthe multiple production department factory overhead rate method.The following factory overhead was budgeted for Firebolt:
1 | Fabrication Department factory overhead | $577,200.00 |
2 | Assembly Department factory overhead | 235,200.00 |
3 | Total | $812,400.00 |
Direct labor hours were estimated as follows:
| | |
| Fabrication Department | 5,200 | hours |
| Assembly Department | 4,900 | |
| Total | 10,100 | hours |
In addition, the direct labor hours (dlh) used to produce a unitof each product in each department were determined from engineeringrecords, as follows:
| Production Departments | Gasoline Engine | Diesel Engine |
| Fabrication Department | 2.8 dlh | 1.9 dlh |
| Assembly Department | 1.9 | 2.8 |
| Direct labor hours per unit | 4.7 dlh | 4.7 dlh |
| Required: |
| a. | Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the single plantwide factoryoverhead rate method, using direct labor hours as the activitybase.* |
| b. | Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the multiple productiondepartment factory overhead rate method, using direct labor hoursas the activity base for each department.* |
| c. | (1) Recommend to management a product costing approach, basedon your analyses in (a) and (b). (2) Give a reason for youranswer. |
| *If required, round all per-unit answers to the nearestcent. |
Single Plantwide Method
Shaded cells have feedback.
a. Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the single plantwide factoryoverhead rate method, using direct labor hours as the activity base. If required, round all per-direct labor hours and per-unitanswers to the nearest cent.
| Gasoline engine | per unit |
| Diesel engine | per unit |
Points:
0 / 2
Feedback
Multiple Production Department Method
Shaded cells have feedback.
b. Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the multiple productiondepartment factory overhead rate method, using direct labor hoursas the activity base for each department. If required, round allper-unit answers to the nearest cent.
