ACC 206 – MANAGERIAL ACCOUNTING – PROJECT #2 – Ramsey Company

ACC 206 –
MANAGERIAL ACCOUNTING
PROJECT #2
Fall 2015

Ramsey Company produces speakers (Model A
and Model B). Both products pass through two production departments. Model A’s
production is much more labor-intensive than that of Model B. Model B is 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 10,000 100,000
Prime costs $150,000 $1,500,000
Direct labor hours 140,000 300,000
Machine hours 20,000 200,000
Production runs (Number of setups) 40 60
Inspection hours 800 1,200
Maintenance hours 10,000 90,000
Overhead costs:
Setup
costs $270,000
Inspection
costs 210,000
Machining
costs 240,000
Maintenance
costs 270,000
Total $990,000

REQUIRED
(Show and Label all supporting calculations!!!!):

A. Compute the overhead cost
per unit for each product by using a plantwide rate based on direct labor
hours.

B. Compute the
overhead cost per unit for each product by using Activity Based Costing.

C. Suppose that
Ramsey decides to use departmental overhead rates. There are two departments:
Dept. 1 (machine intensive) with a rate of $3.50 per machine hour and Dept. 2
(labor intensive) with a rate of $.90 per direct labor hour. The consumption of
these two drivers is as follows:

DEPT.
1 DEPT. 2
Machine
hours Labor
hours
Model
A 10,000 130,000
Model
B 170,000 270,000

Compute the overhead cost per unit for each
product by using departmental rates.

D. Calculate the consumption
ratios for Model A using the four activities: machining, production,
inspection, and maintenance. What conclusion can you reach based upon these
consumption ratios?