Management o f 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 pant-wide overhead rate for allocating overhead to the two products. However, management is considering using departmental overhead rates. The budgeted overhead for Nova is as follows:

Fabrication Department $440,000

Assembly Department 200,000

Total $640,000

Direct Labor hours for the two departments are as follows:

Fabrication Department 4,000

Assembly Department 4,000

Total 8,000

The Following production volume data is available for the two products and two departments:

Gasoline Engine Diesel Engine

Units Produced 400 400

Fabrication department Direct Labor Hours 2,400 1,600

Assembly Department Direct Labor Hours 1,600 2,400

1. Calculate the predetermined overhead rate using a plant-wide rate based on direct labor hours and calculate the unit cost of over head for each product.

2. Calculate the predetermined overhead rate using departmental rates based on direct labor hours and calculate the unit cost of overhead for each product.

3. Which method provides the more accurate cost for overhead?