Ramsey Company produces speakers ( Model A and Model B). Both products pass thro
ID: 2443942 • Letter: R
Question
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 30,000 300,000
Prime Cost $100,000 $1,000,000
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 $180,000
Inspection costs 140,000
Machining 160,000
Maintenance 180,000
Total = $660,000
1. Compute the overhead cost per unit for each product by using ABC. Round to two decimal places.
2. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 ( Machine Intensive) with a rate of $2.33 per machine hour and Department 2 (labor intensive) with a rate of 0.60 per direct labor hour.
The consumption of this two drivers is as follows:
Department 1 Machine Hours Department 2 Direct Labor Hours
Model A 10,000 30,000
Model B $170,000 $270,000
Compute the overhead cost per unit for each product by using departmental rates. Round to two decimal places.
Please show your work
Explanation / Answer
1. Compute the overhead cost per unit for each product by using ABC. Round to two decimal places.
Total Model A Model B
Setup costs $180,000 $180,00x40/100 $72,000 $108,000
Inspection costs $140,000 $140,00x800/2000 $56,000 $84,000
Machining $160,000 $160,00x20/220 $14,545 $145,455
Maintenance $180,000 $180,00x10/100 $18,000 $162,000
Total $660,000 $160,545 $499,455
Units produced 30,000 300,000
OH cost per unit $5.35 $1.66
2. Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 ( Machine Intensive) with a rate of $2.33 per machine hour and Department 2 (labor intensive) with a rate of 0.60 per direct labor hour.
The consumption of this two drivers is as follows:
Department 1 Machine Hours Department 2 Direct Labor Hours
Model A 10,000 30,000
Model B 170,000 270,000
Compute the overhead cost per unit for each product by using departmental rates. Round to two decimal places.
Total overhead costs
Department 1 (180,000 MH x $2.33) $419,400
Department 2 (300,000 DLH x $0.60) $180,000
Total overhead costs $599,400
Model A [(10,000 x $2.33) + (30,000 x $0.60)] $41,300
Per unit cost = $41,300 / 30,000 = $1.38
Model B [(170,000 x $2.33) + (270,000 x $0.60)] $558,100
Per unit cost = $558,100 / 300,000 = $1.86
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