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Single plantwide and multiple production department factory overhead rate methods and product cost distortion The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $370,000 148,000 $518,000 3,700 hours 3,700 7,400 hours In addition, the direct labor hours (dih) used to produce alunit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate Gasoline Engine 1.20 dlh 2.80 4.00 dih Diesel Engine. 2.80 dih 1.20 4.00 dih

Single plantwide and multiple production department factory overhead rate methods and product cost distortion The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $370,000 148,000 $518,000 3,700 hours 3,700 7,400 hours In addition, the direct labor hours (dih) used to produce alunit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate Gasoline Engine 1.20 dlh 2.80 4.00 dih Diesel Engine. 2.80 dih 1.20 4.00 dih

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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< Single plantwide and multiple production department factory overhead rate methods and product cost distortion The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $370,000 148,000 $518,000 3,700 hours 3,700 7,400 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit 4.00 dih a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate Gasoline Engine 1.20 dih 2.80 Diesel Engine 2.80 dih 1.20 4.00 dih
Transcribed Image Text:< Single plantwide and multiple production department factory overhead rate methods and product cost distortion The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total $370,000 148,000 $518,000 3,700 hours 3,700 7,400 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit 4.00 dih a. Determine the per-unit factory overhead allocated to the gasoline and diesel engines under the single plantwide factory overhead rate Gasoline Engine 1.20 dih 2.80 Diesel Engine 2.80 dih 1.20 4.00 dih
Total 7,400 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit Gasoline Engine 1.20 dih 2.80 4.00 dih Diesel Engine 2.80 dlh per unit 1.20 4.00 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. Gasoline engine s per unit per unit Diesel engine s 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. Gasoline engine $ per unit Diesel engine s c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Management should select the factory overhead rate method of allocating overhead costs. The factory overhead rate method indicates that both products have the same factory overhead per unit. Each product uses the direct labor hours Thus, the rate method avoids the cost distortions by accounting for the overhead
Transcribed Image Text:Total 7,400 hours In addition, the direct labor hours (dih) used to produce a unit of each product in each department were determined from engineering records, as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit Gasoline Engine 1.20 dih 2.80 4.00 dih Diesel Engine 2.80 dlh per unit 1.20 4.00 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. Gasoline engine s per unit per unit Diesel engine s 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. Gasoline engine $ per unit Diesel engine s c. Recommend to management a product costing approach, based on your analyses in (a) and (b). Management should select the factory overhead rate method of allocating overhead costs. The factory overhead rate method indicates that both products have the same factory overhead per unit. Each product uses the direct labor hours Thus, the rate method avoids the cost distortions by accounting for the overhead
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