Question

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

Compute the product cost per unit and the gross profit per unit for each product by using a simple cost allocation method (plant-wide rate) based on direct labor hours. Round your final answers to two decimal places.

Answer 1

Calculation of Plant wide overhead rate:

Plant overhead rate = Total overhead ÷ Total labor hours

= $660,000 ÷ 440,000 hrs

= $1.5 per labor hour

Calculation of Product cost per:

	Product A	Product B
a. Prime cost	$100,000	$1,000,000
b. Manufacturing overhead	$210,000 (140,000 labor hrs x $1.5 per labor hour)	$450,000 (300,000 labor hrs x $1.5 per labor hour)
c. Total cost = a + b	$310,000	$1,450,000
d. Total number of products manufactured	20,000 units	200,000 units
e. Product cost per unit = c ÷ d	$15.50	$7.25
f. Sales revenue per unit	$30 ($600,000 ÷ 20,000 units)	$30 ($6,000,000 ÷ 200,000 units)
g. Gross profit per unit = f - e	$14.50	$22.75

Hope this is useful and thank you!!!!!!!