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Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing Ramsey Company produces speakers (model A and model B). Both products pass through two producing departments. Model A's production is much more labour-intensive than that of model B. Model B is also the more popular of the two speakers. The following data have been gathered for the two products: Product Data Model A Model B Units produced per year 120,000 1,200,000 Prime costs $500,000 $5,000,000 Direct labour hours 390,000 1,800,000 Machine hours 120,000 1,200,000 ' Production runs 240 360 Inspection hours 4,800 7,200 Maintenance hours 60,000 540,000 Overhead costs: Setup cosls $1,080,000 Inspection costs 840,000 Machining 960,000 Maintenance 1,080,000 Total $3,950,000 Required: 1. Calculate the overhead cost per unit for each product by using a plantwide rate based on direct labour hours. Round overhead rate to four decimal places and round overhead per unit to nearest cent. ModelA $:] X per unit Model B $:] per unit 2. Calculate the overhead cost per unit for each product by using ABC. Round rate to four decimal places. Round cost per unit to nearest cent. Model A Model B setup $[:1 $[:1 Inspection $[:1 $[:1 35:] .: Maintenance $:] $:] Overhead per unit $:] $:] 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: department 1 (machine intensive) with a rate of $2.33 per machine hour and department 2 (labour intensive) with a rate of $0.60 per direct labour hour. The consumption of these two drivers is as follows: Department 1 Department 2 Machine Hours Direct Labour Hours Model A 60,000 780,000 Model B 1,020,000 1,620,000 Calculate the overhead cost per unit for each product by using departmental rates. Round to two decimal places. ModelA $:] per unit Model B $:] per unit 4. Conceptual Connection: Using the activity-based product costs as the standard, comment on the ability of departmental rates to improve the accuracy of product costing. (Did the departmental rates do better than the plantwide rate?) Activity-Based Costing and Customer-Driven Costs Lambo Auto Limited manufactures a limited edition luxury car that it sells through distributors. The company sells the cars to its distributors for $150,000 each and is very willing to accommodate the requirements of its distributors in order to increase volume. Even though the car sells for a high price, the small batch production methods result in only modest profits. In addition to the normal manufacturing and operating costs that result in a margin on each auto sold of about $10,000, the company incurs some additional costs because of its close relationship to its distributors. These include sales and service calls ($3,500 each); engineering changes ($15,000 each); special packaging for overseas shipment ($15,000 each); and order processing costs ($3,500 each). While these costs seem quite high, the company believes that it controls the demands of its distributors to keep the costs low. Below is a chart of the additional costs required by each of its distributors: Sales/ Service Changes Packaging Orders Distributor Cars Sold Calls Made Requests Placed Atkins 200 20 O 0 6 Brower 200 40 15 0 8 Caldwell 200 80 75 9 15 Driscoll 200 160 125 18 30 Required: Determine the profitability of each customer and recommend action to the company. Operating Income Atkins $:] .: Caldwell $[:] Driscoll $:] .:]