Fall 2015


DUE DATE:  TUESDAY, Octtober 13th, at the beginning of class.


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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?






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