Single Plantwide and Multiple Production Department Factory Overhead Rate Methods
and Product Cost Distortion
eBook Print Item Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion The management of 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 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 Nova: Fabrication Department factory overhead $810,000 Assembly Department factory overhead 360,000 Total $1,170,000 Direct labor hours were estimated as follows: Fabrication Department 4,500 hours Assembly Department 4,500 Total 9,000 hours In addition, the direct labor hours (dih) 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 1.30 dih 2.70 din Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 dih a. Determine the per unit factory overhead allocated to the gasoline and diesel engines under the single olantwide factory overhead rate method, uno In addition, the direct labor hours (dih) 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 1.30 dih 2.70 dth Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 dih 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. 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 factory c. Recommend to management a product costing approach, based on your analles in (a) and (b). Management should select the factory overhead rate method of allocating overhead costs. The overhead rate method indicates that both products have the same factory overhead punit. Each product uses the direct labor hours Thus, the rate method avoid the cost distortions by accounting for the overhead 01A Students PM . do ENG a how.com/d/takeAssignment/takeAssignment Main.donvoker takeAssignmentSessionlocatorinprogress false Updar In addition, the direct labor hours (dih) 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 1,30 dih 2.0 dth Assembly Department 2.70 130 Direct labor hours per unit 4.00 h 400 a. Determine the per un factory overhead located to the goline and diesel engines under the linge plantwide factory overhead method, ushe direct labor hours as the activity be Gasoline engine per unit Diesel engine b. Determine the per unit factory overhead Sected to the soline and enter the production deatment factory overhead method, using direct labor hours as the activity base for each department Gasoline engine per unit Der Unit Diesel engine Der unit Recommend to management a product cost proach, based on your new Management should select the factory overhead rate method of allocating overfad.co The factory overhead rate method multiple department Save the same factory overheden achoduct uses the labor hours Thus inde plante e method avoid the doctors by accounting for the overhead Next Check My Work Che WWOOD
