Ramsey Company produces speakers (Model A and Model B). Ramseys controller, Mr. Jacks, is evaluating the different methods of allocating manufacturing overhead to the products. Both products pass through two producing departments. Model As production is much more labor-intensive than that of Model B. Model B is also more popular of the two speakers. The following data have been gathered for the two products.

		Product Data
		Model A		Model B
Units produced & sold per year		20,000		200,000
Sales Revenue		$600,000.00		$6,000,000.00
Prime cost		$100,000.00		$1,000,000.00
Direct Labor Hours		140,000		300,000
Machine hours		20,000		180,000
Set Ups		40		160
Inspection runs		600		1,400
Packing Orders		9,000		81,000
Estimated Manufacturing Overhead:
Machining costs	$160,000.00
Setup costs	$180,000.00
Inspection costs	$140,000.00
Packing costs	$180,000.00
Total Manufacturing Overhead	$660,000.00

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 $2.75 per machine hour and Department 2 (labor intensive) with an MOH rate of $1.25 per direct labor hour. The actual consumption of these two drivers is as follows:

	Department 1 Fabrication	Department 2 Assembly
	Machine Hours	Direct Labor Hours
Model A	55,000	110,000
Model B	145,000	330,000

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)?