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	$455,000.00
2	Assembly Department factory overhead	286,200.00
3	Total	$741,200.00

Direct labor hours were estimated as follows:

Fabrication Department	4,550	hours
Assembly Department	5,400
Total	9,950	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	2.9 dlh	2.2 dlh
Assembly Department	2.2	2.9
Direct labor hours per unit	5.1 dlh	5.1 dlh

Single Plantwide Method

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

Multiple production method

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

(a)

Calculation of Plant wide OH Rate	Fabricating	Assembly	Total
Manufacturing overhead	455,000	286,200	741,200
Direct Labor	4,550	5,400	9,950
Predetermined overhead Rate [741,200/ 9,950]			74.49

Allocated Overhead to products	Gasoline Engine	Diesel Engine
Direct Labor	5.10	5.10
Predetermined OH Rate	74.49	74.49
Allocated overhead per unit	379.90	379.90

(b)

Calculation of Plant wide OH Rate	Fabricating	Assembly
Manufacturing overhead	455,000	286,200
Direct Labor	4,550	5,400
Predetermined overhead Rate	100	53

Allocated OH to products	Gasoline Engine	Diesel Engine
Direct Labor- Fabricating	2.9	2.2
Predetermined overhead Rate	100	100
Overhead per unit	290	220
Direct labor-assembly	2.2	2.9
Predetermined overhead Rate	53	53
Overhead per unit	116.60	153.70
Total Allocated overhead per unit	406.60	373.70