The management of Cobalt Engines 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 Cobalt: Fabrication Department factory overhead Assembly Department factory overhead Fabrication Department Assembly Department Direct labor hours were estimated as follows: Production Departments Fabrication. Department 4,000 hours. Assembly Department 4,000 Total 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: Direct labor hours per unit Gasoline Engine 1.00 3.00 4.00 $720,000 320,000 Total $ per unit $ per unit Diesel Engine dlh dlh $1,040,000 3.00 dlh 1.00 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 Diesel engine 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 $ per unit
The management of Cobalt Engines 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 Cobalt: Fabrication Department factory overhead Assembly Department factory overhead Fabrication Department Assembly Department Direct labor hours were estimated as follows: Production Departments Fabrication. Department 4,000 hours. Assembly Department 4,000 Total 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: Direct labor hours per unit Gasoline Engine 1.00 3.00 4.00 $720,000 320,000 Total $ per unit $ per unit Diesel Engine dlh dlh $1,040,000 3.00 dlh 1.00 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 Diesel engine 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 $ per unit
Chapter1: Financial Statements And Business Decisions
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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:Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion
The management of Cobalt Engines 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 Cobalt:
Fabrication Department factory
overhead
Assembly Department factory
overhead
Fabrication
Department
Assembly
Department
Direct labor hours were estimated as follows:
Production
Departments
Fabrication
Department
4,000 hours
Assembly
Department
4,000
Total 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:
Direct labor hours
per unit
Gasoline
Engine
1.00
3.00
$720,000
4.00
320,000
Total
$ per unit
$ per unit
Diesel
Engine
dlh
$1,040,000
dlh
3.00 dlh
1.00
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
Diesel engine
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
$ per unit
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