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 $150,000 $1,500,000 Direct labor hours 141,000 280,000 Machine hours 21,000 197,000 Production runs 40 50 Inspection hours 700 1,000 Maintenance hours 11,000 89,000 Overhead costs. Setup costs $243,000 Inspection costs 195,500 Machining 281,900 Maintenance 290,000 Total $1,010,400 Required: 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.) 2 Compute the overhead cost per unit for each product by using ABC. (Round rates and unit overhead cost to two decimal places.) 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments Department 1 (machine intensive) with a rate of $3.80 per machine hour and Department 2 (labor intensive) with a rate of $0.90 per direct labor hour The consumption of these two drivers is as follows Department 1 Machine Hours Department 2 Direct Labor Hours Model A Model B 10.000 190,000 133,000 290,000 Compute the overhead cost per unit for each product by using departmental rates (Round to two decimal places.) 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? Plantwide Rate 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: $ per DLH Model A $ overhead cost per unit Model B $ overhead cost per unit 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 S Model B $ Note: Be sure to complete both tables below Activity Setups Inspections Machining Maintenance overhead cost per unit overhead cost per unit Driver Activity Rate $ per $ per $ per $ per Overhead assignment Model A Model B Setups $ $ Inspections Machining Maintenance Total overhead S $ Units produced 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 $3.80 per machine hour and Department 2 (labor intensive) with a rate of $0.90 per direct labor hour. The consumption of these two drivers is as follows Department 1 Department 2 Machine Hours Direct Labor Hours Model A 10,000 133,000 Model B 190,000 290,000 Compute the overhead cost per unit for each product by using departmental rates. (Round to two decimal places.) Model A $ Model B $ per unit per unit Conceptual Connection 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 hours for machine-intensive departments and departments. Using activity-based costs as the standard, we can say that departmental rates cost assignment for both products. The departmental rates cost A well hours for labor-intensive the accuracy of the overhead the ABC method while the plantwide rate costs A well the ABC method. However, the rates of difference are very close. Looking at it this way, departments costs are not clearly more wrong than the plantwide rate; they are wrong in a direction.