Ramsey Company produces speakers Model A and Model B Ramseys

Ramsey Company produces speakers (Model A and Model B). Ramsey’s controller, Mr. Jacks, is evaluating the different methods of allocating manufacturing overhead to the products. 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 more popular of the two speakers. The following data have been gathered for the two products. (use direct labor hours for the plant-wide MOH rate)

Product Data

Model A

Model B

Units produced & sold per year

20,000

200,000

Sales Revenue

$600,000.00

$6,000,000.00

Prime cost

$100,000.00

$1,000,000.00

Direct Labor Hours

140,000

300,000

Machine hours

20,000

180,000

Set Ups

40

160

Inspection runs

600

1,400

Packing Orders

9,000

81,000

Estimated Manufacturing Overhead:

    Machining costs

$160,000.00

    Setup costs

$180,000.00

   Inspection costs

$140,000.00

  Packing costs

$180,000.00

     Total Manufacturing Overhead

$660,000.00

Suppose that Ramsey decides to use departmental overhead rates. There are two departments: Department 1 (machine intensive) with an MOH rate of $2.75 per machine hour and Department 2 (labor intensive) with an MOH rate of $1.25 per direct labor hour. The actual consumption of these two drivers is as follows:

Department 1

Department 2

Machine Hours

Direct Labor Hours

Model A

Model B

Compute the product cost per unit and the gross profit per unit for each product by using the departmental MOH rates. Round your final answers to two decimal places.

		Product Data
		Model A		Model B
Units produced & sold per year		20,000		200,000
Sales Revenue		$600,000.00		$6,000,000.00
Prime cost		$100,000.00		$1,000,000.00
Direct Labor Hours		140,000		300,000
Machine hours		20,000		180,000
Set Ups		40		160
Inspection runs		600		1,400
Packing Orders		9,000		81,000
Estimated Manufacturing Overhead:
Machining costs	$160,000.00
Setup costs	$180,000.00
Inspection costs	$140,000.00
Packing costs	$180,000.00
Total Manufacturing Overhead	$660,000.00

Solution

Manufacturing Overheads cost

Department 1

Department 2

(A) Rate Per Hour

(B) Machine Hours

(A*B)Total Overheads

(C )rate per Hour

(D) Direct Labor Hours

(C*D) Total Overheads

Model A

$ 2.75

55000

$   151,250.00

$   1.25

110000

$137,500.00

Model B

$ 2.75

145000

$   398,750.00

$   1.25

330000

$412,500.00

Total Overheads

Model A

Model B

MOH

$    288,750.00

$                       811,250.00

Total Cost (Prime cost+ MOH)

$    388,750.00

$      1,811,250.00

Units Produced and Sold

20000

20000

Cost per Unit

$               19.44

$                    90.56

Calculation of Gross Profit

Model A

Model B

Sales

$    600,000.00

$      6,000,000.00

Prime Cost

$    100,000.00

$      1,000,000.00

Manufacturing Overheads

$    288,750.00

$         811,250.00

Gross Profit

$    211,250.00

$      4,188,750.00

Manufacturing Overheads cost
	Department 1	Department 2
	(A) Rate Per Hour	(B) Machine Hours	(A*B)Total Overheads	(C )rate per Hour	(D) Direct Labor Hours	(C*D) Total Overheads
Model A	$ 2.75	55000	$   151,250.00	$   1.25	110000	$137,500.00
Model B	$ 2.75	145000	$   398,750.00	$   1.25	330000	$412,500.00