Question

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: 5561,600.00 Fabrication Department factory overhead Assembly Department factory overhead 241,500.00 5803,100.00

Answer 1

$561,600 $241,500 $803,100 a) Fabrication department overhead Assembly department overhead Total overhead cost Fabrication department direct labor hours Assembly department direct labor hours Total direct labor hours Plant-wide overhead rate per direct labor hour 4,800 5,250 10,050 $79.9104 ($803100 / 10050 hours] Therefore, Production departments: Fabrication department Assembly department Direct labor hour per unit Plant-wide overhead rate per direct labor hour Per-unit factory overhead allocated using plantwide OH rate Gasoline 3.1 1.8 4.9 $79.9104 $391.56 Diesel 1.8 direct labor hours 3.1 direct labor hours 4.9 direct labor hours $79.9104 [As calculated above] $391.56 [4.9 dlh x $79.9104; 4.9 dlh x $79.9104]

Overhead cost Direct labor hours Departmental overhead rate per direct labor hour Fabrication Assembly $561,600 $241,500 4,800 5,250 $117.00 $46.00 ($561600 / 4800 = $117; $241500 / 5250 = $46] Therefore, Gasoline Fabrication department direct labor hour per unit 3.1 Fabrication department 's overhead rate per dlh $117 Fabrication department's overhead allocated $362.70 Assembly department direct labor hour per unit 1.8 Assembly department 's overhead rate per dih $46 Assembly department's overhead allocated $82.80 Per-unit factory overhead allocated using multiple OH rate $445.50 ($362.7 + $82.8) Diesel 1.8 $117 $210.60 [3.1 x $117 = $362.7; 1.8 x $117 = $210.6] 3.1 $46 $142.60 [1.8 x $46 = $82.8; 3.1 x $46 = $142.6] $353.20 ($210.6 + $142.6)