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 Required: 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.* 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.* c. (1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer.
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.
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
|
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 |
|
Required: |
||
|
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.* |
|
|
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.* |
|
|
c. |
(1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer. |
|
|
*If required, round all per-unit answers to the nearest cent. |
- 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 |
- 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 |
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