Question

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:

1	Fabrication Department factory overhead	$577,200.00
2	Assembly Department factory overhead	235,200.00
3	Total	$812,400.00

Direct labor hours were estimated as follows:

Fabrication Department	5,200	hours
Assembly Department	4,900
Total	10,100	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:

Production Departments	Gasoline Engine	Diesel Engine
Fabrication Department	2.8 dlh	1.9 dlh
Assembly Department	1.9	2.8
Direct labor hours per unit	4.7 dlh	4.7 dlh

	Required:
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.*
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.	(1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer.
	*If required, round all per-unit answers to the nearest cent.

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 . If required, round all per-direct labor hours and per-unit answers to the nearest cent.

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. If required, round all per-unit answers to the nearest cent.

Gasoline engine	____________________per unit
Diesel engine	____________________ per unit

Answer 1

Ans:

	Fabrication department factory overhead	$ 577,200.00
	Assembly department factory overhead	$ 235,200.00
	Total	$ 812,400.00
	DLH
	Fabrication department	5200	hours
	Assemby department	4900
	Total	10100
	Production Department	Gasoline Engine	Diesel Engne
	Fabrication Department	2.8	1.9
	Assembly Department	1.9	2.8
	Direct labor hours per unit	4.7	4.7
a	Single plantwide overhead rate = Total overhead cost ÷ Total Direct labor hours
	Single plantwide overhead rate = $8124000 ÷ 10100 =			$ 80.44	DLH
	Gasoline Engine =	DLH x Overhead Rate
		4.7	x	$ 80.44
		$ 378.05	per unit
	Diesel Engine =	4.7	x	$ 80.44
		$ 378.05	per unit
b	Fabrication department overhead rate =	$ 577,200.00	÷	5200
		$ 111.00	per dlh
	Assembly department overhead rate =	$ 235,200.00	÷	4900
		$ 48.00	per dlh
	Gasoline Engine:
	Fabrication	2.8	x	$ 111.00	$ 310.80
	Assembly	1.9	x	$ 48.00	$ 91.20
					$ 402.00
					per unit
	Diesel Engine:
	Fabrication	1.9	x	$ 111.00	$ 210.90
	Assembly	2.8	x	$ 48.00	$ 134.40
				per unit	$ 345.30
c)Management should select the multiple department factory overhead rate method of allocating
overhead cost.The single Plantwide factory overhead rate method indicates that both products have the same factory overhead