Question: 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:

Required: 1. Compute the overhead cost per unit for each product by using a plantwide rate based on direct labor hours.

2. Compute the overhead cost per unit for each product by using ABC.

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                     Department 2
                           Machine hours                  Direct 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. (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?