Question

Exercise 04-8 Using the plantwide overhead rate to assess prices LO P1 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. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.) Process Activity Components Changeover Machining Setups Quantity 850 7,790 120 Finishing Welding Inspecting Rework Overhead Cost Driver $ 455,000 Number of batches 300, 800 Machine hours 227,000 Number of setups $ 982,800 $ 180, 400 Welding hours 226,000 Number of inspections 60,150 Rework orders $ 466,550 $ 134,500 Purchase orders 30,900 Number of units 60,970 Number of units $ 226,370 3,000 820 150 Support Purchasing Providing space Providing utilities 495 6,600 6,600 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 2,200 800 425 490 2,340 60 100 330 Model 212 4,400 2,200 425 330 5,450 60 165

Answer 1

Ans. 1	Process	Amount
	Components	$982,800
	Finishing	$466,550
	Support	$226,370
	Total overhead cost	$1,675,720
	Plantwide overhead rate = Total overhead cost / Machine hours
		$1,675,720 / 7,790
		$215.112	per machine hour
Ans. 2	Overhead assigned	Machine hours (a)	Plantwide OH rate (b)	Total overhead cost (a*b)		Units produced	OH cost per unit
	Model 145	2340	$215.11	$503,362.08		2200	$228.80
	Model 212	5450	$215.11	$1,172,360.40		4400	$266.45
	Overhead cost per unit =   Total overhead cost / Units produced
		Model 145	Model 212
	Materials & labor cost per unit	$300.00	$110.00
	Overhead cost per unit	$228.80	$266.45
	Total cost per unit	$528.80	$376.45
	*Total cost per unit includes materials, labor and overhead cost per unit.
Ans. 3		Model 145	Model 212
	Market price per unit	$731.00	$460.00
	(-) Total cost per unit	$528.80	$376.45
	Profit per unit	$202.20	$83.55
	*Profit per unit is the difference between selling or market price per unit and total cost per unit.