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The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. In addition, the direct labor hours (

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The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication and Assembly. 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 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
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
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:
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:
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