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Ramsey Company produces speakers (Model A and Model B). Ramseys controller, Mr. Jacks, is evaluating the different methods of allocating manufacturing overhead to the products. Both products pass through two producing departments. Model As production is much more labor-intensive than that of Model B. Model B is also more popular of the two speakers. The following data have been gathered for the two products.

		Product Data
		Model A		Model B
Units produced & sold per year		40,000		400,000
Sales Revenue		$1,600,000.00		$16,000,000.00
Prime cost		$120,000.00		$12,000,000.00
Direct Labor Hours		100,000		500,000
Machine hours		25,000		475,000
Set Ups		30		120
Inspection runs		400		1,600
Packing Orders		6,000		59,000
Estimated Manufacturing Overhead:
Machining costs	$250,000.00
Setup costs	$240,000.00
Inspection costs	$100,000.00
Packing costs	$130,000.00
Total Manufacturing Overhead	$720,000.00

Compute the product cost per unit and the gross profit per unit for each product by using a simple cost allocation method (plant-wide rate) based on direct labor hours. Round your final answers to two decimal places.

Compute the product cost per unit and the gross profit per unit for each product by using Activity-Based costing (ABC). Round your final answers to two decimal places.

Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 (machine intensive) with an MOH rate of $0.48 per machine hour and Department 2 (labor intensive) with an MOH rate of $0.80 per direct labor hour. The actual consumption of these two drivers is as follows:

	Department 1	Department 2
	Machine Hours	Direct Labor Hours
Model A	125,000	275,000
Model B	375,000	325,000

Compute the product cost per unit and the gross profit per unit for each product by using the departmental MOH rates. Round your final answers to two decimal places.

Compare the results for the simple cost allocation system (plant-wide), departmental cost allocation and the ABC cost allocation systems. Which do you think is more accurate and why? What circumstances would favor Ramsey adopting ABC as their allocation method (provide at least three reasons)? Do you think Ramsey should adopt ABC as their allocation method? Why or why not?

Ramsey Company produces speakers (Model A and Model B). Ramseys controller, Mr. Jacks, is evaluating the different methods of allocating manufacturing overhead to the products. Both products pass through two producing departments. Model As production is much more labor-intensive than that of Model B. Model B is also more popular of the two speakers. The following data have been gathered for the two products.

				Product Data
				Model A		Model B
	Units produced & sold per year			40,000		400,000
	Sales Revenue			$1,600,000.00		$16,000,000.00
	Prime Cost			$120,000.00		$12,000,000.00
	# of Direct Labor Hours			100,000		500,000
	# of Machine hours			25,000		475,000
	# of Set Ups			30		120
	# of Inspection runs			400		1,600
	# of packing orders			6,000		59,000
	Manufacturing Overhead Costs:
	Machining	$250,000.00
	Setup costs	$240,000.00
	Inspection costs	$100,000.00
	Packing Costs	$130,000.00
	Total	$720,000.00
	Simple or Traditional Cost Allocation			Model A		Model B
	Plant-wide MOH Rate
	Allocated MOH
	Direct Materials & Direct Labor
	Allocated MOH
	Total Product Costs
	Product Cost (CGS) per unit
	Selling Price per unit
	CGS per unit
	Gross Profit per Unit
	Activity-Based Costing			Model A		Model B
		Activity Rates
	Machining
	Setup costs
	Inspection costs
	Packing Costs
	Allocated MOH
	Direct Materials & Direct Labor
	Allocated MOH
	Total Product Costs
	Product Cost (CGS) per unit
	Selling Price per unit
	CGS per unit
	Gross Profit per Unit
	Departmental MOH Rates:	$0.48		$0.80
		Department 1 Fabrication		Department 2 Assembly
		Machine Hours		Direct Labor Hours
	Model A	125,000		275,000
	Model B	375,000		325,000
	Departmental OH Allocation			Model A		Model B
	Direct Materials & Direct Labor
	Allocated MOH Dept 1
	Allocated MOH Dept 2
	Total Product Costs
	Product Cost (CGS) per unit
	Selling Price per unit
	CGS per unit
	Gross Profit per Unit
	Compare the results for the simple cost allocation system (plant-wide) with that of
	an ABC system.
		Plant wide		Departmental		Activity Based
	Model A
	Selling Price per unit
	CGS per unit
	Gross Profit per Unit
	Model B
	Selling Price per unit
	CGS per unit
	Gross Profit per Unit
	Which do you think is more accurate and why?
	What circumstances would favor Ramsey adopting ABC as their allocation method?
	Do you think Ramsey should adopt ABC as their allocation method? Why or why not?