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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
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 | $147,000 | $1,470,000 |
Direct labor hours | 136,000 | 290,000 |
Machine hours | 18,000 | 198,000 |
Production runs | 30 | 70 |
Inspection hours | 800 | 1,300 |
Maintenance hours | 9,000 | 91,000 |
Overhead costs: | ||
Setup costs | $250,000 | |
Inspection costs | 231,000 | |
Machining | 314,000 | |
Maintenance | 270,000 | |
Total | $1,065,000 |
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 $3.10 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 | 11,000 | 128,000 |
Model B | 170,000 | 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? |
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