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Product Data Model A Model B Units produced & sold per year 50,000 500,000 Sales Revenue $1,750,000.00 $17,500,000.00 Prime cost $125,000.00 $1,250,000.00 Direct Labor Hours

Product Data

Model A

Model B

Units produced & sold per year

50,000

500,000

Sales Revenue

$1,750,000.00

$17,500,000.00

Prime cost

$125,000.00

$1,250,000.00

Direct Labor Hours

125,000

475,000

Machine hours

50,000

450,000

Set Ups

25

100

Inspection runs

200

1,800

Packing Orders

12,000

68,000

Estimated Manufacturing Overhead:

Machining costs

$150,000.00

Setup costs

$280,000.00

Inspection costs

$180,000.00

Packing costs

$260,000.00

Total Manufacturing Overhead

$870,000.00

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 $0.42 per machine hour and Department 2 (labor intensive) with an MOH rate of $1.10 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

Model B

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?

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