Question

Production Department Factory Overhead Rate Methods and Product Cost Distortion The management of Nova 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 Nova $468.000 Fabrication Department factory overhead Assembly Department factory overhead 180,00 Total $648,000 Direct labor hours were estimated as follows: ing records, as fotos Fabrication Department 3,600 hours Assembly Department 3,600 7,200 hours In addition, the rest labor hours O wed to produce a unit of each product in each department were determined from eng Production Departments Gasoline Engine Diesel Engine Fabrication Department 1.20 dih 2.10 dih Assembly Department - 2.00 Direct labor hours per un 4.00 4.00 h .. Determine the per Gasoline engine Diesel engine factory overhead located to the gasoline and diesel engines under the single planwide factory overhead rate method, using direct labor hours as the activity base per unit per un . Determine the per fectory overhead located to the one and diesel engines under the multiple production department factory overhead we method, who

Answer 1

* The management of Nova Industries Inc. a per unit factory overhead allocated & single plantarde Gasoline Engine Diesel engine $360 $360 Pes unit per unit Explonation o plant wide factory overhead Rote : - Rudgeted factory overhead Plontwide allocation Base S 648000 = 7200 DL HOUR I go pes PL Hour 2) PODOUCH COST: II Gasoline Engine 2 Diesel engine $ 90 Pes DLHOUR X 5 90 PesDLHOUR x CDLH = $360 4DLH = $360 multiple production Per unit Gasoline Engine Dlesel engine 5296 $ 424 Pesunit

Explanation: Department factory overhead Rates: Fabrication TOTO Production department factory oH (all $468000 Direet labod Hours (6) 3600 prody Chlon Department oh Rate Cat6 s 130lah Assembly 180,000 3600 $5o/dh. 2) Gasoline Engine. a Fabrica Hon : 1.20 OLH X$ 130 6 Assembly : 2.80 DLH X $50 TOTC overhead Pu = - $156) 140 $296 3 blesel engine. a) Fabrication : 2.80 DLH X $130 = .6) Assembly 1. 20DLH X ss0 TOTOY overhead P.U. $364 GO! 42G rol 1 multiple de portment i differentally (ii) multiple department Lin