Ramsey Company produces speakers (Model A and Model B). Bothproducts pass through two producing departments. Model A'sproduction is much more labor-intensive than that of Model B. ModelB is also the more popular of the two speakers. The following datahas been gathered for the two products:
| Product Data |
| Model A | Model B |
| Units produced per year | 10,000 | 100,000 |
| Prime costs | $153,000 | $1,530,000 |
| Direct labor hours | 138,000 | 320,000 |
| Machine hours | 18,000 | 205,000 |
| Production runs | 40 | 70 |
| Inspection hours | 1,000 | 1,000 |
| Maintenance hours | 9,000 | 91,000 |
| Overhead costs: |
| Setup costs | $275,000 | |
| Inspection costs | 190,000 | |
| Machining | 430,000 | |
| Maintenance | 250,000 | |
| Total | $1,145,000 | |
| Required: |
| 1. | Compute the overhead cost per unit for each product by using aplantwide rate based on direct labor hours. (Round to two decimalplaces.) |
| 2. | Compute the overhead cost per unit for each product by usingABC. (Round rates and unit overhead cost to two decimalplaces.) |
| 3. | Suppose that Ramsey decides to use departmental overhead rates.There are two departments: Department 1 (machine intensive) with arate of $3.50 per machine hour and Department 2 (labor intensive)with a rate of $0.90 per direct labor hour. The consumption ofthese two drivers is as follows: |
| Department 1 | Department 2 |
Machine Hours | Direct Labor Hours |
| Model A | 11,000 | 135,000 |
| Model B | 150,000 | 280,000 |
| Compute the overhead cost per unit for each product by usingdepartmental rates. (Round to two decimal places.) |
| 4. | CONCEPTUAL CONNECTION Using the activity-based product costs asthe standard, comment on the ability of departmental rates toimprove the accuracy of product costing. Did the departmental ratesdo better than the plantwide rate? |
Plantwide Rate
1. Compute the overhead cost per unit for each product by usinga plantwide rate based on direct labor hours. (Round to two decimalplaces.)
Plantwide rate: per DLH
| Model A: overhead cost per unit |
| Model B: overhead cost per unit |
Activity Rates
2. Compute the overhead cost per unit for each product by usingABC. (Round rates and unit overhead costs to two decimalplaces.)
| Model A: overhead cost per unit |
| Model B: overhead cost per unit |
Note: Be sure to complete both tables below.
| | |
| Activity | Driver | Activity Rate |
| Setups | | per |
| Inspections | | per |
| Machining | | per |
| Maintenance | | per |
| Overhead assignment |
| Model A | Model B |
| Setups | | |
| Inspections | | |
| Machining | | |
| Maintenance | | |
| Total overhead | | |
| ÷ Units produced | | |
| Overhead per unit | | |
Departmental Rates
3. Suppose that Ramsey decides to use departmental overheadrates. There are two departments: Department 1: (machine intensive)with a rate of $3.50 per machine hour and Department 2: (laborintensive) with a rate of $0.90 per direct labor hour. Theconsumption of these two drivers is as follows:
| Department 1 | Department 2 |
Machine Hours | Direct Labor Hours |
| Model A | 11,000 | 135,000 |
| Model B | 150,000 | 280,000 |
Compute the overhead cost per unit for each product by usingdepartmental rates. (Round to two decimal places.)
| Model A: per unit |
| Model B: per unit |
