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 plantvide 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 Fabrication Department factory overhead $557,750.00 Assembly Department factory overhead 257,550.00 Total $815,300.00 Direct labor hours were estimated as follows: Fabrication Department 4,850 hours Assembly Department 5,050 Total 9,900 hours In addition, the direct labor hours (dih) 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 3.1 dih 2.1 dih Assembly Department 2.1 3.1 Direct labor hours per unit 5.2 dlh 5.2 dih

Answer 1

a)

Single Plantwide method:
Total Overhead	$815,300
Total Direct Labor Hours	9,900
Overhead Rate/hour ($815,300 ÷ 9,900)	$82.35
Gasoline (5.2 × $82.35)	$428.22
Diesel (5.2 × $82.35)	$428.22

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b)

Multiple Production Department Method:
	Fabrication	Assembly	Total
Overhead rate per hour (A)	$557,750	$257,550
Labor hours (B)	4850	5050
Overhead rate per hour (C = A ÷ B)	$115	$51
Gasoline (3.1 dlh × $115) , (2.1 × $51)	$356.50	$107.10	$463.60
Diesel (2.1 dlh × $115), (3.1 × $51)	$241.50	$158.10	$399.60