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 $612,000   Assembly Department factory overhead 252,000     Total $864,000   Direct labor hours were estimated as follows:   Fabrication Department 3,600 hours Assembly Department 3,600     Total 7,200 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 1.20 dlh 2.80 dlh Assembly Department 2.80   1.20   Direct labor hours per unit 4.00 dlh 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 $                1 per unit Diesel engine $                 2 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 $                   3 per unit Diesel engine $                   4 per unit

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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 $612,000  
Assembly Department factory overhead 252,000  
  Total $864,000  

Direct labor hours were estimated as follows:

 

Fabrication Department 3,600 hours
Assembly Department 3,600  
  Total 7,200 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 1.20 dlh 2.80 dlh
Assembly Department 2.80   1.20  
Direct labor hours per unit 4.00 dlh 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 $                1 per unit
Diesel engine $                 2 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 $                   3 per unit
Diesel engine $                   4 per unit
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