11) The management of Firebolt Industries Inc. manufactures gasoline and diesel

Question

11) 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:

Question not attempted.

1

Fabrication Department factory overhead

$550,000.00

2

Assembly Department factory overhead

250,000.00

3

Total

$800,000.00

Direct labor hours were estimated as follows:

Fabrication Department

5,000 hours

Assembly Department

5,000

Total

10,000 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

3.0 dlh

2.0 dlh

Assembly Department

2.0

3.0

Direct labor hours per unit

5.0 dlh

5.0 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

A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior. Activity bases are also used in the denominator in calculating the predetermined factory overhead rate to assign overhead costs to cost objects.

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

Explanation / Answer

1)

2)

workings:

Plant wise rate Total Overhead 800000 Tota Direct Labour Hours 10000 Overhead Rate/Hour 80 Gasoline (5x 80) 400 Diesel (5 x 80) 400

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