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 |
2 | Assembly Department factory overhead | 286,200.00 |
3 | Total | $741,200.00 |
Direct labor hours were estimated as follows:
Fabrication Department | 4,550 | hours |
Assembly Department | 5,400 | |
Total | 9,950 | 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 |
Fabrication Department | 2.9 dlh | 2.2 dlh |
Assembly Department | 2.2 | 2.9 |
Direct labor hours per unit | 5.1 dlh | 5.1 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. |
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 . If required, round all per-direct labor hours and per-unit answers to the nearest cent.
Gasoline engine | per unit |
Diesel engine | per unit |
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. If required, round all per-unit answers to the nearest cent.
Gasoline engine | per unit |
Diesel engine | per unit |
c. (1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer.
(1)
(2)
a.
Factory overhead rate = Estimated overhead / direct labor hours
Factory overhead rate = $741,200 / 9,950 = $74.49 per hour
Gasoline | Diesel engines | |
Per unit factory overhead allocated | $380 (5.1*$74.49) | $380 (5.1*$74.49) |
b.
Fabrication department | Assembly department | |
Factory overhead | $455,000 | $286,200 |
Direct labor hours | 4,550 | 5,400 |
Overhead per direct labor hour | $100 | $53 |
Gasoline | Diesel engines | |
Fabrication | $290 (2.9*$100) | $220 (2.2*$100) |
Assembly | 116.6 (2.2*$53) | 153.7 (2.9*$53) |
Per unit factory overhead allocated | $406.6 | $373.7 |
c.
Management should go for multiple production department factory overhead rate method as it provides accurate results with respect to overhead cost per unit incurred by each department.
The above answer is correct. The rounding may give you a little trouble but overall its okay.
4. Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion 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...
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion 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...
Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion 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...
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 $557,750.00 2 Assembly Department factory overhead 257,550.00...
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 $577,200.00 2 Assembly Department factory overhead 235,200.00...
**Please look at numbers** Please answer only (a) and (b) - thank you in advance! :) 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...
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 $614,800.00 2 Assembly Department factory overhead 246,750.00...
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 $557,750.00 2 Assembly Department factory overhead 257,550.00...
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 $614,800.00 2 Assembly Department factory overhead 246,750.00...
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 $636,650.00 2 Assembly Department factory overhead 243,000.00...