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 4,000 hours 4,000 8,000 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 6.0 dlh 4.0 dlh Assembly Department 4.0 6.0 Direct labor hours per unit 10.0 dlh 10.0 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 $ per unit Diesel engine $ per unit $440,000 200,000 $640,000 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 bas each department. Gasoline engine $ Diesel engine $ per unit per unit

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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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
$440,000
200,000
$640,000
4,000 hours
4,000
8,000 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
6.0 dlh
4.0 dlh
4.0
6.0
Assembly Department
Direct labor hours per unit
10.0 dlh
per unit
per unit
10.0 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 $
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.
Gasoline engine $
Diesel engine $
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 $440,000 200,000 $640,000 4,000 hours 4,000 8,000 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 6.0 dlh 4.0 dlh 4.0 6.0 Assembly Department Direct labor hours per unit 10.0 dlh per unit per unit 10.0 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 $ 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. Gasoline engine $ Diesel engine $
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