The Sayther Company manufactures and sells two products, A and B. Manufacturing overhead costs at its Edmonton plant are allocated to each product using a plantwide rate of $17 per direct manufacturing labour-hour. This rate is based on budgeted manufacturing overhead of $340,000 and 20,000 budgeted direct labour-hours.

Department Overhead Labour-Hours

1 $240,000 10,000

2 100,000 10,000

Total $340,000 20,000

The number of direct manufacturing labor-hours required to manufacture each product is:

Manufacturing

Department Product A Product B

1 4 1

2 1 4

Total 5 5

Per-unit costs for the two categories of direct manufacturing costs are:

Direct

Manufacturing Costs Product A Product B

Direct material costs $120 $150

Direct manufacturing labour costs 80 80

At the end of the year there was no work in process. There were two 200 finished units of product A and 600 finished units of product B on hand. Assume that the budgeted production level of the Edmonton plant was exactly attained.

Sayther sets the listed selling price of each product by adding 120% to its unit manufacturing costs; that is, if the unit manufacturing costs are $100, the listed selling price is $220($100+$120). This 120% markup is designed to cover costs upstream to manufacturing(for example, product design) and costs downstream from manufacturing (for example, marketing and customer service) as well as to provide an operating income.

REQUIRED

1. What is the effect on the inventoriable costs for products A and B of using a plantwide overhead rate instead of department overhead rates?

What difference would result in the per-unit selling prices of product A and product B from using a plantwide overhead rate instead of department overhead rates?