Syntel Corporation’s memory chip division manufactures two types of computer memory chips: The RAM.-A chip is a commonly used chip for personal computer systems, and the RAM-B chip is used for specialized scientific applications. Unit-level materials costs for the RAM-A chip are 25 cents per unit and for the RAM-B are $1.12 per unit. The division’s annual output is 32 million chips. Labor costs in the division total $625,000. Manufacturing overhead is composed of $1.2 million of corporate service cost allocated to the division on the basis of labor costs and $1.2 million of divisional overhead (supervision, materials handling and security, utilities, equipment costs and depreciation, etc.).

The company’s assembly process is highly automated. As a result, the primary function for direct labor is to set up a production run and to check equipment settings on a periodic basis. Yesterday the equipment was set up to run 1,600 RAM-B units. When that run was completed, equipment settings were changed, and 200,000 RAM-A units were produced. Part of the daily cost report follows:

RAM-A RAM-B Wins} ONOGUCE CI ara ay. c-careeeteerr: ccanee s 200,000 1,600 Unit-level materials USed.............006 $ 25,000 $1,896 RAD OWUSEC neetras d£08 caye tee ta! $ 2,000 $1,200 Required

a. Recommend how to allocate the memory chip division’s overhead (allocated and divisional) to the division’s two products. What should influence your choice of allocation bases?

b. For yesterday’s production run, what is the total manufacturing cost per unit for RAM-A and RAM-B using your recommended approach?

c. Compare your result in requirement

(b) with another approach using a different cost-allocation base(s). Explain the source of the difference between full costs per unit for each product.