Ramsey Company produces speakers (Model A and Model B). Both products pass through two producing departments. Model A's production is much more labor-intensive than that of Model B. Model B is also the more popular of the two speakers. The following data has been gathered for the two products:

	Product Data
	Model A	Model B
Units produced per year	10,000	100,000
Prime costs	$146,000	$1,460,000
Direct labor hours	139,000	310,000
Machine hours	19,000	197,000
Production runs	30	70
Inspection hours	700	1,300
Maintenance hours	12,000	88,000
Overhead costs:
Setup costs	$280,000
Inspection costs	190,000
Machining	128,000
Maintenance	300,000
Total	$898,000

1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Round to two decimal places.)

Plantwide rate:

Model A:
Model B:

2. Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead costs to two decimal places.)

Model A:	$fill in the blank 790b08f5d06c06b_1 overhead cost per unit
Model B:	$fill in the blank 790b08f5d06c06b_2 overhead cost per unit

Activity	Driver	Activity Rate
Setups		runhour
Inspections		$fill in the blank 790b08f5d06c06b_7 per runhour
Machining		$fill in the blank 790b08f5d06c06b_10 per runhour
Maintenance		$fill in the blank 790b08f5d06c06b_13 per runhour

Overhead assignment
	Model A	Model B
Setups	$fill in the blank 790b08f5d06c06b_15	$fill in the blank 790b08f5d06c06b_16
Inspections	fill in the blank 790b08f5d06c06b_17	fill in the blank 790b08f5d06c06b_18
Machining	fill in the blank 790b08f5d06c06b_19	fill in the blank 790b08f5d06c06b_20
Maintenance	fill in the blank 790b08f5d06c06b_21	fill in the blank 790b08f5d06c06b_22
Total overhead	$fill in the blank 790b08f5d06c06b_23	$fill in the blank 790b08f5d06c06b_24
Units produced	fill in the blank 790b08f5d06c06b_25	fill in the blank 790b08f5d06c06b_26
Overhead per unit	$fill in the blank 790b08f5d06c06b_27	$fill in the blank 790b08f5d06c06b_28

Question Content Area

3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1: (machine intensive) with a rate of $4 per machine hour and Department 2: (labor intensive) with a rate of $1 per direct labor hour. The consumption of these two drivers is as follows:

	Department 1 Machine Hours	Department 2 Direct Labor Hours
Model A	8,000	134,000
Model B	180,000	280,000

Compute the overhead cost per unit for each product by using departmental rates. (Round to two decimal places.)

Model A:	$fill in the blank dbc21206efe0fa1_1 per unit
Model B:	$fill in the blank dbc21206efe0fa1_2 per unit

Question Content Area

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?

A common justification is to use

machinelabor

hours for machine-intensive departments and

machinelabor

hours for labor-intensive departments. Using activity-based costs as the standard, we can say that departmental rates

increaseddecreased

the accuracy of the overhead cost assignment for both products. The departmental rates cost A well

abovebelow

the ABC method while the plantwide rate costs A well

abovebelow

the ABC method. However, the rates of difference are very close. Looking at it this way, department costs are not clearly more wrong than the plantwide rate; they are wrong in a

differentsame

direction. The departmental rates

diddid not

do better than the plantwide rates.