Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing 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: Required: 1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. ( Note : Round to two decimal places.) 2. Compute the overhead cost per unit for each product by using ABC. ( Note: 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 $3.50 per machine hour and Department 2 (labor intensive) with a rate of $0.90 per direct labor hour. The consumption of these two drivers is as follows: Compute the overhead cost per unit for each product by using departmental rates. ( Note: 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?

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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773
BuyFind

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
Publisher: Cengage Learning
ISBN: 9781337115773

Solutions

Chapter
Section
Chapter 5, Problem 54P
Textbook Problem

Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing

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:

Chapter 5, Problem 54P, Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing Ramsey Company , example  1

Required:

  1. 1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours. (Note: Round to two decimal places.)
  2. 2. Compute the overhead cost per unit for each product by using ABC. (Note: Round rates and unit overhead cost to two decimal places.)
  3. 3. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 (machine intensive) with a rate of $3.50 per machine hour and Department 2 (labor intensive) with a rate of $0.90 per direct labor hour. The consumption of these two drivers is as follows:

Chapter 5, Problem 54P, Plantwide versus Departmental Rates, Product-Costing Accuracy: Activity-Based Costing Ramsey Company , example  2

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

  1. 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?

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Chapter 5 Solutions

Managerial Accounting: The Cornerstone of Business Decision-Making
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