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FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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
Transcribed Image Text:Tamarindo 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 Model B's. Model B is also the more popular of the two speakers. The
following data have been gathered for the two products:
Product Data
Model A
Model B
Units produced per year
30,000
300,000
Prime costs
$2,000,000
300,000
200,000
$200,000
Direct labor hours
Machine hours
140,000
20,000
Production runs
40
60
Inspection hours
Maintenance hours
800
1,200
10,000
90,000
Overhead Costs
Setup costs
Inspection costs
Machining
Maintenance
Total
24
360,000
280,000
320,000
360,000
$1,320,000
Required
1. Compute the overhead cost per unit for each product using a plantwide rate
based on direct labor hours.
2. Compute the overhead cost per unit for each product using activity-based
costing.
3. Suppose that Tamarindo decides to use departmental overhead rates. There are
two departments: Department 1 (machine intensive) with a rate of $4.66 per
machine hour, and Department 2 (labor intensive) with a rate of $1.20 per
direct labor hour. The consumption of these two drivers is given below:
Department 1
Department 2
Model A
10,000
130,000
Model B
170,000
270,000
Compute the overhead cost per unit for each product using departmental rates.
4. 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?)
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