Question

Ramsey Company produces speakers (Model A and Model B). Ramsey’s controller, Mr. Jacks, is evaluating the different methods of allocating manufacturing overhead to the products. 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 more popular of the two speakers. The following data have been gathered for the two products. (use direct labor hours for the plant-wide MOH rate)

		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

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	Department 2
	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.

Answer 1

Manufacturing Overheads cost
	Department 1			Department 2
	(A) Rate Per Hour	(B) Machine Hours	(A*B)Total Overheads	(C )rate per Hour	(D) Direct Labor Hours	(C*D) Total Overheads
Model A	$ 2.75	55000	$   151,250.00	$   1.25	110000	$137,500.00
Model B	$ 2.75	145000	$   398,750.00	$   1.25	330000	$412,500.00

Total Overheads
	Model A	Model B
MOH	$    288,750.00	$                       811,250.00

Total Cost (Prime cost+ MOH)	$    388,750.00	$      1,811,250.00
Units Produced and Sold	20000	20000
Cost per Unit	$               19.44	$                    90.56

Calculation of Gross Profit
	Model A	Model B
Sales	$    600,000.00	$      6,000,000.00
Prime Cost	$    100,000.00	$      1,000,000.00
Manufacturing Overheads	$    288,750.00	$         811,250.00
Gross Profit	$    211,250.00	$      4,188,750.00