6. 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: Department Fabrication Department Assembly Department Total Overhead Direct labor hours were estimated as follows: Department Fabrication Department Assembly Department Total Direct Labor Hours Production Departments Dollar Amount Fabrication Department Assembly Department Total Direct Labor Hours per Unit $550,000 250,000 800,000 Direct Labor 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: Gasoline Engine 3.5 dlh 2 5.5 dlh 5,000 5,000 10,000 Diesel Engine 2 dlh 3.5 5.5 dlh 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. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.
6. 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: Department Fabrication Department Assembly Department Total Overhead Direct labor hours were estimated as follows: Department Fabrication Department Assembly Department Total Direct Labor Hours Production Departments Dollar Amount Fabrication Department Assembly Department Total Direct Labor Hours per Unit $550,000 250,000 800,000 Direct Labor 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: Gasoline Engine 3.5 dlh 2 5.5 dlh 5,000 5,000 10,000 Diesel Engine 2 dlh 3.5 5.5 dlh 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. Recommend to management a product costing approach, based on your analyses in (a) and (b). Support your recommendation.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:6. 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:
Department
Fabrication Department
Assembly Department
Total Overhead
Direct labor hours were estimated as follows:
Department
Fabrication Department
Assembly Department
Total Direct Labor Hours
Dollar Amount
Production Departments
Fabrication Department
Assembly Department
Total Direct Labor Hours per Unit
$550,000
250,000
800,000
Direct Labor 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:
Gasoline Engine
3.5 dlh
2
5.5 dlh
5,000
5,000
10,000
Diesel Engine
2 dlh
3.5
5.5 dlh
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. Recommend to management a product costing approach, based on your analyses in (a)
and (b). Support your recommendation.
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