# 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 have been gathered for the two products:  Product Data Model AModel BUnits produced per year10,000100,000Prime costs\$150,000\$1,500,000Direct labor hours140,000300,000Machine hours20,000200,000Production runs4060Inspection hours8001,200Maintenance hours10,00090,000Overhead costs:       Setup costs\$270,000      Inspection costs\$210,000      Machining\$240,000      Maintenance\$270,000      Total\$990,000 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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Asked Nov 27, 2019
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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 of Model B. Model B is also the more popular of the two speakers. The following data have been gathered for the two products:

 Product Data Model A Model B Units produced per year 10,000 100,000 Prime costs \$150,000 \$1,500,000 Direct labor hours 140,000 300,000 Machine hours 20,000 200,000 Production runs 40 60 Inspection hours 800 1,200 Maintenance hours 10,000 90,000 Overhead costs: Setup costs \$270,000 Inspection costs \$210,000 Machining \$240,000 Maintenance \$270,000 Total \$990,000
1. 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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Step 1

Following are the calculation of overhead cost per unit for each product by using a plant wide rate based on direct labor:

Step 2

Following are the calculation of overhead cost per unit ...

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