Question

Single plantwide and Multiple production department factory overhead rate methods and product cost distortion Instructions Single Plantwide Method Multiple Production Department Method Final Questions Instructions The management of Firebolt Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in order to guide product strategy. Presently, the company uses a single plantwide factory overhead rate for allocating factory overhead to the two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Firebolt: 1 Fabrication Department factory overhead 2 Assembly Department factory overhead 3 Total 636,650.00 43,000.00 879,650.00

Answer 1

A
Overhead rate	81.83		=879650/10750
Gasoline engine	392.78	per unit	=4.8*81.83
Diesel engine	392.78	per unit	=4.8*81.83
B
Overhead rate:
Fabrication	119		=636650/5350
Assembly	45		=243000/5400
Gasoline engine	430.60	per unit	=(2.9*119)+(1.9*45)
Diesel engine	356.60	per unit	=(1.9*119)+(2.9*45)
C
1
Management should change to the multiple production department factory overhead rate method.
2
In this case, the single plantwide method causes cost distortion, so the multiple production department method should be used.