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 Maintenance hours 800 1,200 10,000 90,000 Overhead costs: Setup costs Inspection costs Machining $270,000 210,000 240,000 Maintenance 270,000 Total $990,000 Department 1 Machine Hours Department 2 Direct Labor Hours Model A 10,000 130,000 Model B 170,000 270,000

Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter15: Introduction To Managerial Accounting
Section: Chapter Questions
Problem 3CMA: A firm has 100,000 in direct materials costs, 50,000 in direct labor costs, and 80,000 in overhead....
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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?

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
Maintenance hours
800
1,200
10,000
90,000
Overhead costs:
Setup costs
Inspection costs
Machining
$270,000
210,000
240,000
Maintenance
270,000
Total
$990,000
Transcribed Image Text: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 Maintenance hours 800 1,200 10,000 90,000 Overhead costs: Setup costs Inspection costs Machining $270,000 210,000 240,000 Maintenance 270,000 Total $990,000
Department 1
Machine Hours
Department 2
Direct Labor Hours
Model A
10,000
130,000
Model B
170,000
270,000
Transcribed Image Text:Department 1 Machine Hours Department 2 Direct Labor Hours Model A 10,000 130,000 Model B 170,000 270,000
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