Ramsey Company produces speakers (Model A and Model B). Ramsey’s controller, Mr.
ID: 2402780 • Letter: R
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
Model B
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.
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
Explanation / Answer
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
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
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