Question

Way Cool produces two different models of air conditioners. The company produces the mechanical systems in its components department. The mechanical systems are combined with the housing assembly in its finishing department. The activities, costs, and drivers associated with these two manufacturing processes and the production support process follow. Process Activity Components Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 870 7,730 120 5,500 Finishing Welding Inspecting Rework Overhead Cost $ 500, 250 356,353 223,800 $1,080, 403 $ 363,000 307,100 60,000 $ 730,100 $ 171,000 32,100 36,660 $ 239,760 Welding hours Number of inspections Rework orders 830 250 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 570 3,600 3,600 Additional production information concerning its two product lines follows. Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders Model 145 1,200 2,000 435 480 2,450 60 140 380 Model 212 2,400 3,500 435 350 5,280 60 190

1. Using ABC, compute the overhead cost per unit for each product line.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $190 for Model 145 and $112 for Model 212.
3. If the market price for Model 145 is $986.58 and the market price for Model 212 is $568.77, determine the profit or loss per unit for each model.

Answer 1

• Requirement 1

				Model 145		Model 212
ACTIVITY	Expected Costs	Expected Activity	Activity rates	Activity Driver incurred	Overhead assigned	Activity Driver incurred	Overhead assigned
	[A]	[B]	[C = A / B]	[D]	[E = C x D]	[F]	[G = C x F]
Components:
Changeover	$                  500,250.00	870	$                     575.00	435	$             250,125.00	435	$       250,125.00
Machining	$                  356,353.00	7,730	$                        46.10	2,450	$             112,945.00	5,280	$       243,408.00
Setups	$                  223,800.00	120	$                  1,865.00	60	$             111,900.00	60	$       111,900.00
Finishing:
Welding	$                  363,000.00	5,500	$                        66.00	2,000	$             132,000.00	3,500	$       231,000.00
Inspecting	$                  307,100.00	830	$                     370.00	480	$             177,600.00	350	$       129,500.00
Rework	$                    60,000.00	250	$                     240.00	140	$                33,600.00	110	$          26,400.00
Support:
Purchasing	$                  171,000.00	570	$                     300.00	380	$             114,000.00	190	$          57,000.00
Providing Space & Utilities	$                    68,760.00	3,600	$                        19.10	1,200	$                22,920.00	2,400	$          45,840.00
					0		0
				Total Overhead cost	$             955,090.00	Total Overhead cost	$    1,095,173.00
				Total Units produced	1,200	Total Units produced	2,400
				Overhead cost per unit	$                      795.91	Overhead cost per unit	$                456.32

• Requirement 2

Working		Model 145	Model 212
A	Material & Labor per unit	$                          190.00	$     112.00
B	Overhead cost per unit	$                          795.91	$     456.32
C = A + B	Total Cost per unit	$                          985.91	$     568.32

• Requirement 3

Working		Model 145	Model 212
A	Price per unit	$                          986.58	$     568.77
B	Cost per unit	$                          985.91	$     568.32
C = A - B	Profit (Loss) per unit	$                               0.67	$          0.45