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 $507,000 Assembly Department factory overhead 195,000 Total $702,000 Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total 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 1.30 dih 2.70 dih Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 din 3,900 hours 3,900 7,800 hours 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 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
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 $507,000 Assembly Department factory overhead 195,000 Total $702,000 Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total 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 1.30 dih 2.70 dih Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 din 3,900 hours 3,900 7,800 hours 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 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
$507,000
Assembly Department factory overhead
195,000
Total
$702,000
Direct labor hours were estimated as follows:
Fabrication Department
Assembly Department
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 follows:
3,900 hours
3,900
7,800 hours
Production Departments Gasoline Engine Diesel Engine
Fabrication Department
1.30 dih
2.70 dih
Assembly Department
2.70
1.30
4.00 din
4.00 dih
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
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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