A.

Sounds Fine. |nc.. manufactures two models of stereo speakers. Cost estimates for the two models for the coming year are as follows: Basic Model Advanced Hodel Direct material $378 $ 528 Direct labor (18 hours at $24 per hour) 248 248 Manufacturing overhead* 258 258 Total cost $869 $1,818 tThe predetermined overhead rate is $25 per directlabor hour. Each stereo speaker requires 10 hours of direct labor. Each Basic Model unit requires three hours in Departmentl and seven hours in Department ll. Each unit of the Advanced Model requires seven hours in Department | and three hours in Department II. The manufacturing overhead costs expected during the coming year in Departments | and II are as follows: Department I Department 11 Variable overhead $28 per direct-labor hour $14 per direct-labor hour Fixed overhead $264J889 $264,989 The expected operating activity for the coming year is 33,000 directlabor hours in each department. Required: 1. Calculate the total budgeted overhead cost and total expected directlabor hours for both departments together. Compute the predetermined overhead rate per directlabor hour. 2. What will be the price of each model stereo speaker ifthe company prices its products at absorption manufacturing cost plus 20 percent? 3. Suppose Sounds Fine, |nc., were to use departmental overhead rates. Compute these rates for Departments | and II for the coming year. 4. Compute the absorption cost of each model stereo speaker using the departmental overhead rates computed in requirement (3). 5. Suppose management sticks with its policy of setting prices equal to absorption cost plus 20 percent. Compute the new price for each speaker model using the product costs developed in requirement (4). 6. Should Sounds Fine, lnc., use plantwide or departmental overhead rates?