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 $440,000 176,000 $616,000 $ unit 4,400 hours 4,400 8,800 hours n 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 1.30 dlh 2.70 dih Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 dih 1. 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. 91 x per Gasoline engine Diesel engine per unit . 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 Recommend to management a product costing approach, based on your analyses in (a) and (b).
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 $440,000 176,000 $616,000 $ unit 4,400 hours 4,400 8,800 hours n 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 1.30 dlh 2.70 dih Assembly Department 2.70 1.30 Direct labor hours per unit 4.00 dih 4.00 dih 1. 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. 91 x per Gasoline engine Diesel engine per unit . 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 Recommend to management a product costing approach, based on your analyses in (a) and (b).
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter4: Activity-based Costing
Section: Chapter Questions
Problem 7E: The management of Nova Industries Inc. manufactures gasoline and diesel engines through two...
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Transcribed Image Text:Single Plantwide and Multiple Production Department Factory Overhead Rate Methods and Product Cost Distortion
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
4,400 hours
Assembly Department
4,400
Total
8,800 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
1.30 dlh
2.70 dlh
Assembly Department
2.70
Direct labor hours per unit
4.00 dlh
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.
91 X per
4.00 dlh
unit
$440,000
176,000
$616,000
1.30
Gasoline
engine
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 multiple department ✔factory overhead rate method of allocating overhead costs. The single plantwide
✔factory overhead rate method indicates that both products have the same factory
?
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