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. Model A Model B
Units produced per year 10,000 Units produced per year 100,000
Prime Costs $150,000 Prime Costs $1,500,000
Direct Labor Hours 140,000 Direct labor Hours 300,000
Machine Hours 20,000 Machine Hours 200,000
Production runs 40 Production runs 60
Inspection hours 800 Inspection hours 1200
Maintenance hours 10,000 Maintenance hours 90,000

Overhead costs:
Setup costs $270,000
Inspection costs $210,000
Machining $240,000
Maintenance $270,000
Total overhead costs $990,000

Required:
a. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours (Round to two decimal places).
b. Compute the overhead cost per unit for each product by using ABC.
c. 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 department rate do better than the plant rate?

a. $2.05 (two decimal places)

b. Model A = $312,000  Model B= $1,397,000

c. The use of departmental overheads rate is more accurate than the plant wide.

Explanation:

Plant wide overhead rate = Total Overheads / Total Activity

                                          =  $990,000 / (140,000 + 300,000)

                                          =  $990,000 / 440,000

                                          = $2.04545 OR $2.05 (two decimal places)

For ABC, first calculate Cost Driver Rate as follows :

Setup costs =  $270,000 / (40 +60)

                    =  $2,700 per production run.

Inspection costs = $210,000 / (800 +1,200)

                           = $105 per inspection hour

Machining = $240,000 / (20,000 + 200,000)

                 = $1.09 per machine hour

Maintenance = $990,000 / (10,000 + 90,000)

                      = $9.90 per maintenance hour

The next step is to Allocate the overheads  to the Products :

                                                Model A             Model B

Overhead costs:

Setup costs                             $108,000           $162,000

Inspection costs                       $84,000           $126,000

Machining                                  $21,000           $218,000

Maintenance                             $99,000           $891,000

Total overhead costs              $312,000         $1,397,000

answer; i believe that the correct answer is ( owners investment)

hello the answer is d