Question

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 $455,000.00 Assembly Department factory overhead 286,200.00 Total $741,200.00 Direct labor hours were estimated as follows:

Answer 1

a. Determination of Per Unit Factory Overhead allocated to the Gasoline and Diesel Engine Under Single Plantwide Method: Factory Overhead Rate = Budgeted Factory Overhead Cost/Allocation Base = Budgeted Factory Overhead Cost/Direct Labor Hrs = $741,200/9950 DLHrs. = $74.49 Calculation of Per Unit Factory Overhead Allocated: Gasoline Engine Diesel Engine Direct Labor Hrs Per Unit 5.1 5.1 Factory Overhead Rate Per Direct Labor Hr $74.49 $74.49 Per Unit Factory Overhead $379.91 $379.91

b. Determination of Per Unit Factory Overhead allocated to the Gasoline and Diesel Engine Under Multiple Department Method: Factory Overhead Rate for Fabrication Dept. = Budgeted Factory Overhead Cost/ Allocation Base = Budgeted Factory Overhead Cost/Direct Labor Hrs = $455,000/4550 DLHrs. = $ 100.00 Factory Oassembly Dept. - Budgeted Fac Factory Overhead Rate for Assembly Dept. = Budgeted Factory Overhead Cost/ Allocation Base = Budgeted Factory Overhead Cost/Direct Labor Hrs = $286,200/5400 DLHrs. = $53.00 Diesel Engine 2.2 $100.00 Calculation of Per Unit Factory Overhead Allocated: Gasoline Engine Fabrication Dept. Direct Labor Hrs Per Unit 2.9 Factory Overhead Rate Per Direct Labor Hr $100.00 Per Unit Factory Overhead- Fabrication Dept. $290.00 Assembly Dept. Direct Labor Hrs Per Unit 2.2 Factory Overhead Rate Per Direct Labor Hr $53.00 Per Unit Factory Overhead- Assembly Dept. $116.60 $220.00 2.9 $53.00 $153.70 Total Per Unit Factory Overhead $406.60 $373.70