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

$148,000

$1,480,000

Direct labor hours

135,000

300,000

Machine hours

21,000

197,000

Production runs

40

50

Inspection hours

1,000

1,400

Maintenance hours

9,000

91,000

Overhead costs:

Setup costs

$252,000

Inspection costs

276,000

Machining

289,500

Maintenance

270,000

Total

$1,087,500

	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 $3.40 per machine hour and Department 2 (labor intensive) with a rate of $1.00 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	135,000
Model B	190,000	260,000

	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?

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: overhead cost per unit
	Model B: overhead cost per unit

Note: Be sure to complete both tables below.

Activity

Driver

Activity Rate

Setups

per

Inspections

per

Machining

per

Maintenance

per

Overhead assignment
	Model A	Model B
Setups
Inspections
Machining
Maintenance
Total overhead
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 $3.40 per machine hour and Department 2: (labor intensive) with a rate of $1.00 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	135,000
Model B	190,000	260,000

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

	Model A: 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?

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: overhead cost per unit
	Model B: overhead cost per unit

Note: Be sure to complete both tables below.

Activity

Driver

Activity Rate

Setups

per

Inspections

per

Machining

per

Maintenance

per

Overhead assignment
	Model A	Model B
Setups
Inspections
Machining
Maintenance
Total overhead
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 $3.40 per machine hour and Department 2: (labor intensive) with a rate of $1.00 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	135,000
Model B	190,000	260,000

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

	Model A: 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?

A common justification is to use________ hours for machine-intensive departments and_____________ hours for labor-intensive departments. Using activity-based costs as the standard, we can say that departmental rates_____________ the accuracy of the overhead cost assignment for both products. The departmental rates cost A well_______________ 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.