Question

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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 two products. However, management is considering the multiple production department factory overhead rate method. The following factory overhead was budgeted for Firebolt: Fabrication Department factory overhead $557,750.00 1 2 Assembly Department factory overhead 257.550.00 $815,300.00 Total Direct labor hours were estimated as follows: Fabrication Department 4,850 hours Assembly Department 5,050 Total 9,900 hours In addition, the direct labor hours (dlh) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Gasoline Engine Diesel Engine 2.1 dlh Fabrication Department 3.1 dlh Assembly Department 2.1 3.1 Direct labor hours per unit 5.2 dlh 5.2 dlh Required: a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base.* b. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department.* c. (1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer. *If required, round all per-unit answers to the nearest cent.

Answer 1

a.

Single predetermined overhead = $815,300 / 9,900 = $82.35 per direct labor hour

Gasoline engine = 5.2 * $82.35 = $428.22 per unit

Diesel engine = 5.2 * $82.35 = $428.22 per unit

b.

Multi production department factory overhead rate :

Fabrication department = $557,750 / 4,850 = $115

Assembly department = $257,550 / 5,050 = $51

Gasoline engine = 3.1*$115 + 2.1*$51 = 356.5+107.1 = $463.6 per unit

Diesel engine = 2.1*$115 + 3.1*$51 = 241.5+158.1 = $399.6 per unit

c. As per above results, Multi production department factory overhead method is recommended to management.