Single plantwide and multiple production department factory overhead rate methods and product cost distortion

production department factory overhead rate method. The following factory overhead was budgeted for Nova:

Direct labor hours were estimated as follows:

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:

Gasoline engine $

per unit

Diesel engine $

per unit

for each department.

Gasoline engine &

per unit

Diesel engine $

per unit

c$.$ Recommend to management a product costing approach, based on your analyses in $($a$)$ and $($b$).$

Management should select the factory overhead rate method of allocating overhead costs. The

factory overhead rate method indicates that both products have

the same factory overhead per unit. Each product uses the direct labor hours

$.$ Thus, the $-$

rate method avoids the cost distortions by accounting for the overhead

i$.$