Question 1 Salty Sensations Snacks Company manufactures three types of snack foods: tortilla chips, potato chips, and pretzels. The company has budgeted the following costs for the upcoming period: 1 Factory depreciation $33,782.00 2 Indirect labor 84,456.00 3 Factory electricity 8,446.00 4 Indirect materials 40,356.00 5 Selling expenses 26,900.00 6 Administrative expenses 17,200.00 7 Total costs $211,140.00 Factory overhead is allocated to the three products on the basis of processing hours. The products had the following production budget and processing hours per case: Budgeted Volume (Cases) Processing Hours per Case Tortilla 3,600 0.25 chips Potato 5,300 0.11 chips Pretzels 2,300 0.49 Total 11,200 Required: a. Determine the single plantwide factory overhead rate.* Use the factory overhead rate in (a) to determine the amount of total and per-case factory overhead allocated to each of the three products under generally accepted accounting principles. Refer to the Amount Descriptions list provided for the exact b. wording of the answer choices for text entries.* * If required, round your answers to the nearest cent. Amount Descriptions Potato chips Pretzels Setup Quality control Tortilla chips Total Overhead a. Determine the single plantwide factory overhead rate. If required, round your answer to the nearest cent. per processing hour b. Use the factory overhead rate in (a) to determine the amount of total and per-case factory overhead allocated to each of the three products under generally accepted accounting principles. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. If required, round your answer to the nearest cent. 1 2 3 4 5 Total Factory Overhead Per Case Factory Overhead Question 2 1. Multiple Production Department Factory Overhead Rate Method Performance Gloves, Inc. produces three sizes of sports gloves: small, medium, and large. A glove pattern is first stenciled onto leather in the Pattern Department. The stenciled patterns are then sent to the Cut and Sew Department, where the glove is cut and sewed together. Performance Gloves uses the multiple production department factory overhead rate method of allocating factory overhead costs. Its factory overhead costs were budgeted as follows: Pattern Department overhead $105,600 Cut and Sew Department overhead 176,000 Total $281,600 The direct labor estimated for each production department was as follows: Pattern Department 1,600 direct labor hours Cut and Sew Department 2,000 Total 3,600 direct labor hours Direct labor hours are used to allocate the production department overhead to the products. The direct labor hours per unit for each product for each production department were obtained from the engineering records as follows: Production Departments Small Glove Medium Glove Large Glove Pattern Department 0.04 0.05 0.06 Cut and Sew Department 0.07 0.09 0.11 Direct labor hours per unit 0.11 0.14 0.17 If required, round all per unit answers to the nearest cent. a. Determine the two production department factory overhead rates. Pattern Department $ per dlh Cut and Sew Department $ per dlh b. Use the two production department factory overhead rates to determine the factory overhead per unit for each product. Small glove $ per unit Medium glove $ per unit Large glove $ per unit Question 3 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 Department4,550hours Assembly Department 5,400 Total 9,950hours 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 Gasoline Engine Diesel Engine Departments Fabrication 2.9 dlh 2.2 dlh Department Assembly 2.2 2.9 Department Direct labor 5.1 dlh 5.1 dlh hours per unit Required: Determine the per-unit factory overhead allocated to the gasoline and diesel a. engines under the single plantwide factory overhead rate method, using direct labor hours as the activity base.* Determine the per-unit factory overhead allocated to the gasoline and diesel b. engines under the multiple production department factory overhead rate method, using direct labor hours as the activity base for each department.* (1) Recommend to management a product costing approach, based on your c. analyses in (a) and (b). (2) Give a reason for your answer. *If required, round all per-unit answers to the nearest cent. 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 . If required, round all per-direct labor hours and per-unit answers to the nearest cent. Gasoline engine Diesel engine per unit 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. If required, round all per-unit answers to the nearest cent. Gasoline engine Diesel engine per unit per unit c. (1) Recommend to management a product costing approach, based on your analyses in (a) and (b). (2) Give a reason for your answer. (1) Management should continue to use the single plantwide overhead rate method. Management is indifferent, since either method yields the same result. 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. In this case, the factory overhead rates for each product are the same under either method; therefore, the company should choose single plantwide method since it’s easier to implement. In this case, the multiple production department method causes cost distortion, so the single plantwide method should be used.
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