Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion

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

Fabrication Department factory overhead

Direct labor hours were estimated as follows:

Fabrication Department

Assembly Department

Total

$4,100$ hours

$\frac{4,100}{8,200}$ 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:

Gasoline engine $

per unit

Diesel engine

per unit

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$.$