The management of Nova Industries Inc. manufactures gasoline and diesel engines through two production departments, Fabrication...
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The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total 2.70 $429,000 195,000 $624,000 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 1.30 dlh 2.70 dlh Assembly Department 1.30 Direct labor hours per unit 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 Each product uses the direct labor hours 4.00 dlh 3,900 hours 3,900 7,800 hours 4.00 dlh factory overhead rate method of allocating overhead costs. The Thus, the factory overhead rate method indicates that both products have the same factory overhead per unit. rate method avoids the cost distortions by accounting for the overhead The management of Nova 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 Nova: Fabrication Department factory overhead Assembly Department factory overhead Total Direct labor hours were estimated as follows: Fabrication Department Assembly Department Total 2.70 $429,000 195,000 $624,000 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 1.30 dlh 2.70 dlh Assembly Department 1.30 Direct labor hours per unit 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 Each product uses the direct labor hours 4.00 dlh 3,900 hours 3,900 7,800 hours 4.00 dlh factory overhead rate method of allocating overhead costs. The Thus, the factory overhead rate method indicates that both products have the same factory overhead per unit. rate method avoids the cost distortions by accounting for the overhead
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Lets break down the problem step by step a Single Plantwide Factory Overhead Rate Method The single plantwide factory overhead rate is calculated by d... View the full answer
Related Book For
Financial and Managerial Accounting
ISBN: 978-1285866307
13th edition
Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac
Posted Date:
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