Question

Single pla vide and Multiple production department factory overhead te methods and product cost distortion Instructions 2 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: Fabrication Department factory overhead $557,750.00 Assembly Department factory overhead 2 257,550.00 Total $815,300.00 Direct labor hours were estimated as follows: Fabrication Department 4,850 hours Assembly Department 5,050 9,900 hours Total In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as folows: Production Departments Gasoline Engine Diesel Engine Fabrication Department 3.1 dlh 2.1 dih 3.1 Assembly Department 2.1 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 ise 5/15/2019 CengageNOWv2 | Online teaand learning resource from Cengage Leaning ide and bMuliple production department factory overhenbete methods and product cost distortion Single p Single Plantwide Method the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate m If required, round all per-direct labor hours and per-unit answers to the nearest cent direct labor hours as the activity base. Gasoline engine S per unit Diesel engine $ per unit 5/15/2019 CengageNOWv2 | Online tea and learning resource from Congago Loaming Single plaide and Multiple production department fact tory overheade methods and product cost distortion Multiple Production Department Method Le 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. f required, round all per-unit answers to the nearest cent Gasoline engines per unit Diesel engine S per unit

Answer 1

Firebolt Ltd. Requirement a: Total Budgeted Overhead + total hours Rate (815300/9900) 82.35 Product costs Rate x Labor hours for each product GS (fd)= 3.1 x 82.35-25529 GS (AD) 2.1 x 82.35 : 172.94 TOTAL : FD +AD=428.22 Requirement b: Department rate Department Overhead Labor hours FD (FOH) 557750/4850 115 AD( FOH) 257550 / 5050-51 Product allocation Labor hours per product x Department rate; GE) FD 3.1 x 115 356.50 2.1 x 51 107.10 TOTAL(PA) 463.60 Requirement c: Management should change to the multiple production department factory overhead rate method In this case, the single plantwide method causes cost distortion, so the multiple production department method should be used