The management of Firebolt Industries Inc. manufactures gasoline and diesel engi
ID: 2401901 • Letter: T
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:
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:
1
Fabrication Department factory overhead
$455,000.00
2
Assembly Department factory overhead
286,200.00
3
Total
$741,200.00
Explanation / Answer
a)calculation of 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.*
=total foh/direct labour hours
=$741200/9950hr
=74.5$
= 380$per unit
fohcost per unit of desile engine =5.1hr*74.5
= 380$per unit
b)calculation ofper-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
c) 1.for recovery of FOH multiple production department factory overhead method is adopted
2. because product cost results based upon actual units allocated to each deparment per unit
Production Departments total cost (A) DLH (B) rate/hour A/B Fabrication Department 455000 4550 100 Assembly Department 286200 5400 53Related Questions
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