Question

The management of Firebolt 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 Firebolt:
Question not attempted.
1. Fabrication Department factory overhead $550,000.00
2. Assembly Department factory overhead 250,000.00
3. Total $800,000.00
Direct labor hours were estimated as follows:
Fabrication Department 5,000 hours
Assembly Department 5,000
Total 10,000 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:
Production Departments Gasoline Engine Diesel Engine
Fabrication Department 3.0 dlh 2.0 dlh
Assembly Department 2.0 3.0
Direct labor hours per unit 5.0 dlh 5.0 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
A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.
Gasoline engine $_________ per unit
Diesel engine $_________ 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 $_________ per unit
Diesel engine $_________ per unit

Answer 1

Answer:

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

Per Unit Overhead Cost for Gasoline engine;

= No. of Direct Labor Hours per Unit  * Overhead Rate per Hour

Overhead Rate per hour = Total overhead cost/ Total direct labor hours

= 800,000/10,000

= $80 per hour

Per Unit Overhead Cost for Gasoline engine;

= 5 * 80

= $400

Per Unit Overhead Cost for Diesel engine;

= No. of Direct Labor Hours per Unit  * Overhead Rate per Hour

= 5 * 80

= $400

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 Overhead cost for Gasoline engine under multiple production department factory overhead rate method;

= Overhead Cost under Fabrication Department  + Overhead Cost in Assembly Department

Overhead Cost under Fabrication Department = Overhead Rate for Fabrication Department * No. of Direct Labor Hours under Fabrication Department

= (Overhead cost for fab. depart. / No. of direct labor hours for fab. depart.) * No. of Direct Labor Hours engine is in Fabrication Department

= (550,000/5,000) *  3

= $330

Overhead Cost under Assembly Department  = Overhead Rate for Assembly Department * No. of Direct Labor Hours in Assembly Department

= (Overhead cost for assembly. depart. / No. of direct labor hours for fab. depart.) * No. of Direct Labor Hours engine is in assembly Department..

= (250,000/5,000) * 2

= $100

​

​Per Unit Overhead cost for Gasoline engine under multiple production department factory overhead rate method = 330 + 100

= $430

Diesel Engine

Per Unit Overhead cost for Diesel engine under multiple production department factory overhead rate method;

= Overhead Cost under Fabrication Department  + Overhead Cost in Assembly Department

Overhead Cost under Fabrication Department = Overhead Rate for Fabrication Department * No. of Direct Labor Hours under Fabrication Department

= (Overhead cost for fab. depart. / No. of direct labor hours for fab. depart.) * No. of Direct Labor Hours engine is in Fabrication Department

= (550,000/5,000) *  2

= $220

Overhead Cost under Assembly Department  = Overhead Rate for Assembly Department * No. of Direct Labor Hours in Assembly Department

= (Overhead cost for assembly. depart. / No. of direct labor hours for fab. depart.) * No. of Direct Labor Hours engine is in assembly Department..

= (250,000/5,000) * 3

= $150

​

​Per Unit Overhead cost for Gasoline engine under multiple production department factory overhead rate method = 330 + 100

= $370