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The management of Firebolt Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. Management needs accurate product cost information in
The management of Firebolt 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 Firebolt:
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:
a Determine the perunit 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.
b Determine the perunit 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 Support your recommendation.
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