Plantwide versus Departmental Rates, Product-Costing Accuracy:Activity-Based CostingRamsey Company produces speakers (Model A and Model B). Bothproducts pass through two producing departments. Model A'sproduction is much more labor-intensive than that of Model B. Model Bis also the more popular of the two speakers. The following data havebeen gathered for the two products: Product Data Model A Model B Units produced per yearPrime costsDirect labor hoursMachine hoursProduction runsInspection hoursMaintenance hours 10,000$150,000140,00020,0004080010,000 100,000$1,500,000300,000200,000601,20090,000 Overhead costs:Setup costsInspection costsMachiningMaintenanceTotal $270,000210,000240,000270,000$990,000 Required: 1. Compute the overhead cost per unit for each product by using aplantwide rate based on direct labor hours. (Note: Round to two decimal places.)2. Compute the overhead cost per unit for each product by usingABC. (Note: Round rates and unit overhead cost to two decimalplaces.) 3. Suppose that Ramsey decides to use departmental overheadrates. There are two departments: Department 1 (machineintensive) with a rate of $3.50 per machine hour and Department 2(labor intensive) with a rate of $0.90 per direct labor hour. Theconsumption of these two drivers is as follows: Department 1Machine Hours Department 2Direct Labor Hours Model AModel B 10,000170,000 130,000270,000 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 productcosts as the standard, comment on the ability of departmentalrates to improve the accuracy of product costing. Did thedepartmental rates do better than the plantwide rate?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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:
| Product Data | ||
| Model A | Model B | |
| Units produced per year Prime costs Direct labor hours Machine hours Production runs Inspection hours Maintenance hours |
10,000 $150,000 140,000 20,000 40 800 10,000 |
100,000 $1,500,000 300,000 200,000 60 1,200 90,000 |
Setup costs Inspection costs Machining Maintenance Total |
||
| $270,000 210,000 240,000 270,000 $990,000 |
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:
| Department 1 Machine Hours |
Department 2 Direct Labor Hours |
|
| Model A Model B |
10,000 170,000 |
130,000 270,000 |
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?
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