Single Plantwide and Multiple Production Department FactoryOverhead Rate Methods and Product Cost DistortionThe management of Nova Industries Inc. manufacturesgasoline and diesel engines through two productiondepartments, Fabrication and Assembly. Management needs$>)$ accurate product cost information in order to guide productstrategy. Presently, the company uses a single plantwide faoverhead rate for allocating factory overhead to the twoproducts. However, managenment is considering the multiplproduction department factory overhead rate method. Thefollowing factory overhead was budgeted for Nova:Fabrication Department factory overheadAssembly Department factory overheadTotalFabrication DepartmentAssembly DepartmentDirect labor hours were estimated as follows:TotalProduction DepartmentsFabrication DepartmentAssembly DepartmentDirect labor hours per unitIn addition, the direct labor hours $($dlh$)$ used to produce a unit oeach product in each department were determined fromengineering records, as follows:Gasoline engineGasoline EngineDiesel engine$1\mathrm{.}20$ dlh$2\mathrm{.}804\mathrm{.}00$ dlh$3,500$per unit$3,500$ hoursper unit$$350,0007,000$ hours$$490,0002\mathrm{.}80$ dlh$140,000$Diesel Engine$1\mathrm{.}204\mathrm{.}00$ dlha. Deternmine the per$-$unit factory overhead allocated to thegasoline and diesel engines under the single plantwide factoryoverhead rate method, using direct labor hours as the activitybase.Jb$.$ Determine the per$-$unit factory overhead allocated to thegasoline and diesel engines under the multiple productiondepartment factory overhead rate method, using direct laborhours as the activity base for each department.

overhead rate method, using direct labor hours as the activit$)$ base.

Gasoline 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.

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