Question

The management of Firebolt Industries Inc. manufactures gasolineand diesel engines through two production departments, Fabricationand Assembly. Management needs accurate product cost information inorder to guide product strategy. Presently, the company uses asingle plantwide factory overhead rate for allocating factoryoverhead to the two products. However, management is consideringthe multiple production department factory overhead rate method.The following factory overhead was budgeted for Firebolt:1 Fabrication Department factory overhead $614,800.002 Assembly Department factory overhead 246,750.003 Total $861,550.00Direct labor hours were estimated as follows:Fabrication Department 5,300 hoursAssembly Department 5,250 Total 10,550 hoursIn addition, the direct labor hours (dlh) used to produce a unitof each product in each department were determined from engineeringrecords, as follows:ProductionDepartments GasolineEngine DieselEngineFabrication Department 2.9 dlh 1.8 dlhAssembly Department 1.8 2.9Direct labor hours perunit 4.7 dlh 4.7 dlhRequired:a. Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the single plantwide factoryoverhead rate method, using direct labor hours as the activity base. If required, round all per-direct labor hours and per-unitanswers to the nearest cent.Gasoline engine per unitDiesel engine per unitb. Determine the per-unit factory overhead allocated to thegasoline and diesel engines under the multiple productiondepartment factory overhead rate method, using direct labor hoursas the activity base for each department. If required, round allper-unit answers to the nearest cent.Gasoline engine per unitDiesel engine per unitc. (1) Recommend to management aproduct costing approach, based on your analyses in (a) and (b).

Answer 1

Solution:

Single factory overhead amount: the amount at which plant overheads or processing overheads are assigned to goods is referred to as single plant overhead rate.

Formula to measure a single plant-wide overhead rate:

Single plant-wide overhead rate :

$\frac{Total budgeted factory overhead}{ Total budgeted plant-wide allocation base}$  

Different development team overhead rate: this distribution system describes the various divisions engaged in the manufacturing cycle. Factory overheads are assigned to goods on the basis of the overhead cost for each of the manufacturing units.

Formula for calculating various output department overhead:

Multiple production department overhead rate:

$\frac{ Budgeted department factory overhead}{ Budgeted department factory overhead}$

For calculate: single plant-wide overhead rate use direct working hours (DLH) as the allocation basis, and measure factory overhead.

Using DLH as the allocation basis to measure a single plant-wide overhead limit.

Single plant-wide overhead rate :  $\frac{Total budgeted factory overhead}{ Total budgeted plant-wide allocation base}$

                                                     = $\frac{80,000}{10,000 DLH}$

For calculate: single plant-wide overhead rate use direct working hours (DLH) as the allocation basis, and measure factory overhead.

Using DLH as the allocation basis to measure a single plant-wide overhead limit.