ator theds and product cost distortion Simole plantwide and

ator theds and product cost distortion Simole plantwide and The management of Fet ndutes inc manutactures gasoline and desel engines theough two production departments, Fabrication and Assembly Management coute producs cont ntormation in nder to ude rodua stranegy Prsventy, the company uses a single plantwide factory overhead rate for allocating factory

Solution

a. Plantwide factory overhead rate=Budgeted factory overhead/Budgeted labor hours=741200/9950=$74.50 Per-unit factory overhead allocated=direct labor hours per unit*plantwide factory overhead rate Gasoline engine=5.1*74.50=$379.95 per unit Diesel engine=5.1*74.50=379.95 per unit b. Departmental factory overhead rate=Budgeted factory overhead in the department/budgeted direct labor hours in the department Fabrication Assembly Budgeted factory overhead 455000 286200 Budgeted labor hours 4550 5400 Departmental factory overhead rate 100 53 Per-unit factory overhead allocated=direct labor hours per unit*departmental factory overhead rate Gasoline engine: Fabrication 2.9*100 290 Assembly 2.2*53 116.6 Per unit factory overhead rate 406.6 Diesel engine: Fabrication 2.2*100 220 Assembly 2.9*53 153.7 Per unit factory overhead rate 373.7 c. 1 Management should change to the multiple production department factory overhead rate method. 2 In this case, the single plantwide method causes cost distortion,so the multiple production department method should be used.