Question

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	$153,000	$1,530,000
Direct labor hours	143,000	310,000
Machine hours	21,000	196,000
Production runs	40	60
Inspection hours	900	1,300
Maintenance hours	8,000	92,000
Overhead costs:
Setup costs	$300,000
Inspection costs	209,000
Machining	318,200
Maintenance	260,000
Total	$1,087,200

	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 $3.90 per machine hour and Department 2 (labor intensive) with a rate of $1.20 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	128,000
Model B	190,000	290,000

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

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 . Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1: (machine intensive) with a rate of $3.90 per machine hour and Department 2: (labor intensive) with a rate of $1.20 per direct labor hour. The consumption of these two drivers is as follows: Department 1 Department 2 Machine Hours Direct Labor Hours Model A 10,000 128,000 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:  per unit Model B:  per unit

Answer 1

Question .1

Estimated total overhead	10,87,200
Estimated Direct labor hours	4,53,000
OH rate per hour	2.40
Product	Hours used	Rate	OH applied	Production	OH cost per unit
Model A	1,43,000	2.40	3,43,200	10,000	34.32
Model B	310000	2.40	7,44,000	1,00,000	7.44
Total	453000	2.40	10,87,200

Question 2:

				Model A		Model B
Cost pool	Estimated overhead	Cost driver level	Recovery rate	Cost driver	OH applied	Cost driver	OH applied
	A	B	C=A/B	D	E= D*C	F	G= F*C
Set up	3,00,000	100	3,000.00	40	1,20,000	60	1,80,000
Inspection	2,09,000	2,200	95.00	900	85,500	1,300	1,23,500
Machining	3,18,200	2,17,000	1.47	21,000	30,794	1,96,000	2,87,406
Maintenance	2,60,000	1,00,000	2.60	8,000	20,800	92,000	2,39,200
Total overhead applied					2,57,094		8,30,106
Production					10,000		1,00,000
OH cost per unit					25.71		8.30

Question 3:

	Model A			Model B
	Hours used	Rate per hour	OH applied	Hours used	Rate per hour	OH applied
Department 1	10,000	3.9	39,000	1,90,000	3.9	7,41,000
Department 2	1,28,000	1.2	1,53,600	2,90,000	1.2	3,48,000
Total OH applied			1,92,600			10,89,000
Production			10,000			1,00,000
OH cost per unit			19.26			10.89