4. 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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Chapter1: Financial Statements And Business Decisions
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Please solve only question number 4 do not give solution of 1,2 and 3 questions.

Solve only question number 4

Tamarindo 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 Model B's. 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 costs
$2,000,000
300,000
200,000
$200,000
Direct labor hours
Machine hours
140,000
20,000
Production runs
40
60
Inspection hours
Maintenance hours
800
1,200
10,000
90,000
Overhead Costs
Setup costs
Inspection costs
Machining
Maintenance
Total
24
360,000
280,000
320,000
360,000
$1,320,000
Required
1. Compute the overhead cost per unit for each product using a plantwide rate
based on direct labor hours.
2. Compute the overhead cost per unit for each product using activity-based
costing.
3. Suppose that Tamarindo decides to use departmental overhead rates. There are
two departments: Department 1 (machine intensive) with a rate of $4.66 per
machine hour, and Department 2 (labor intensive) with a rate of $1.20 per
direct labor hour. The consumption of these two drivers is given below:
Department 1
Department 2
Model A
10,000
130,000
Model B
170,000
270,000
Compute the overhead cost per unit for each product using departmental rates.
4. 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?)
Transcribed Image Text:Tamarindo 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 Model B's. 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 costs $2,000,000 300,000 200,000 $200,000 Direct labor hours Machine hours 140,000 20,000 Production runs 40 60 Inspection hours Maintenance hours 800 1,200 10,000 90,000 Overhead Costs Setup costs Inspection costs Machining Maintenance Total 24 360,000 280,000 320,000 360,000 $1,320,000 Required 1. Compute the overhead cost per unit for each product using a plantwide rate based on direct labor hours. 2. Compute the overhead cost per unit for each product using activity-based costing. 3. Suppose that Tamarindo decides to use departmental overhead rates. There are two departments: Department 1 (machine intensive) with a rate of $4.66 per machine hour, and Department 2 (labor intensive) with a rate of $1.20 per direct labor hour. The consumption of these two drivers is given below: Department 1 Department 2 Model A 10,000 130,000 Model B 170,000 270,000 Compute the overhead cost per unit for each product using departmental rates. 4. 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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