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 $616,000 Assembly Department factory overhead 264,000 Total $800,000 Direct labor hours were estimated as follows: 4,400 hours 4,400 8,800 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: Fabrication Department Assembly Department Total 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 method, using direct labor hours as the activity base. Gasoline engine s Diesel engine Gasoline Engine Diesel Engine 1.30 dn 2.70 din 2.70 1.30 4.00 d 4.00 per unit 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. Gasoline engine Diesel engine per unit per unit
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 $616,000 Assembly Department factory overhead 264,000 Total $800,000 Direct labor hours were estimated as follows: 4,400 hours 4,400 8,800 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: Fabrication Department Assembly Department Total 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 method, using direct labor hours as the activity base. Gasoline engine s Diesel engine Gasoline Engine Diesel Engine 1.30 dn 2.70 din 2.70 1.30 4.00 d 4.00 per unit 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. Gasoline engine Diesel engine per unit per unit
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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
$616,000
Assembly Department factory overhead
264,000
Total
$800,000
Direct labor hours were estimated as follows:
4,400 hours
4,400
8,800 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:
Fabrication Department
Assembly Department
Total
Production Departments
Fabrication Department
Assembly Department
Direct labor hours per unit
Gasoline Engine Diesel Engine
1.30 dn
2.70 din
2.70
1.30
4.00 din
4.00
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
Diesel engine
per unit
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.
Gasoline engine
Diesel engine
per unit
per unit
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