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 Fabrication Department Assembly Department Total Direct labor hours were estimated as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit 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: Gasoline Engine 1.30 dih 2.70 4.00 dih Gasoline engine Diesel engine per unit per unit $663,000 273,000 3,900 hours 3,900 7,800 hours per unit $936,000 2.70 dih Diesel Engine 1.30 4.00 dih 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. 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
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 Fabrication Department Assembly Department Total Direct labor hours were estimated as follows: Production Departments Fabrication Department Assembly Department Direct labor hours per unit 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: Gasoline Engine 1.30 dih 2.70 4.00 dih Gasoline engine Diesel engine per unit per unit $663,000 273,000 3,900 hours 3,900 7,800 hours per unit $936,000 2.70 dih Diesel Engine 1.30 4.00 dih 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. 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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
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.
Topic Video
Question
100%
Please answer all parts
Transcribed Image Text:Problem Set: Module 3
1. EX.04.06
2. EX.04.07.ALGO
3. EX.04.05.ALGO
4. TMM.04.06
5. EX.04.03.ALGO
engagenow.com
Fabrication Department factory overhead
Assembly Department factory overhead
Total
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
Assembly Department
Total
Direct labor hours were estimated as follows:
Production Departments
Fabrication Department
Assembly Department
Direct labor hours per unit
Gasoline engine
Diesel engine
Gasoline Engine
1.30 dih
2.70
Gasoline engine $
Diesel engine $
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:
4.00 dih
+
per unit
per unit
per unit
$663,000
273,000
$936,000
3,900 hours
3,900
per unit
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.
Diesel Engine
2.70 dlh
1.30
40
4.00 dlh
:
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.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education