Simple Ptintwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortian The mariagement of Novs Industries Inc, manufactures gasoline and diesel engines threugh two production departments, fabricatian and Assembly. Maragement 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 tivo products. However, management is consiffenng the muitiple producboh department factory oveihead rate method. The following factory overthead was budgeted for Nova: Direc labor hours were estimsted as follows In addition, the direct lobor hours (dih) used to peoduce a unit of each peoduct in each departient were determined from engineering records, as follows. a. Determine the per-unit factory overhead allocated to the gasoline and diesel enones under the single plantwide factory overhead me method, using ditect labor heurs as the octrity base. 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 rote method, using diect tabor hours as the activity base for each department. Gasoline engine 1 per unit Diesel engine per unit c. Plecommiend to managenent a product costing approach, based on your analyses in (o) and (b). Management should select the factory overhead rate method of allocating overhead costs. The mothod indicates that both products have the sarne factory overhead per. unit. Each product uses the direct labor hours factory overheod rate rate methed avoids the cost distortions by accounting for the overhead: roned wh wh a. Total bubgeted orerhead - Total labochours = Department Factory Oweitiead Rale Preduct costs - Department Fackary Ove head Rate x laber hours for each product b. Departhert rafe = Defartment, Overhead - Labec hours. cont of the products