Question

Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their 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 Overhead Cost Driver Ouantity 553,350 388,680 222,000 $1,164,030 Number of batches Machine hours Number of setups 930 8,200 120 Machining Setups 5,200 885 250 Finishing Welding $ 301,600 278,775 55,000 635,375 $ 183,595 30,400 38,360 252,355 Inspecting Rework Welding hours Number of inspections Rework orders Purchasing Providing space Providing utilities Support Purchase orders Number of units Number of units 503 3,600 3,600 Additional production information concerning its two product lines follows Model 145 Model 212 Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders 1,200 2,000 515 2,850 60 160 335 2,400 3,200 465 370 5,350 60 90 168 Required: 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 $220 for Model 145 and $122 for Model 212 3. If the market price for Model 145 is $1,038.38 and the market price for Model 212 is $568.36, determine the profit or loss per unit for each model

Answer 1

Answers

• All working forms part of the answer
• Requirement 1

						Model 145		Model 212
Activity	Expected Costs	Expected Activity		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	$      553,350.00	930	Number of batches	$                 595.00	per Number of batches	465	$        276,675.00	465	$      276,675.00
Machining	$      388,680.00	8,200	Machine hours	$                   47.40	per Machine hours	2,850	$        135,090.00	5,350	$      253,590.00
Setups	$      222,000.00	120	Setups	$             1,850.00	per Setups	60	$        111,000.00	60	$      111,000.00
Finishing
Welding	$      301,600.00	5,200	Welding hours	$                   58.00	per Welding hours	2,000	$        116,000.00	3,200	$      185,600.00
Inspecting	$      278,775.00	885	Inspections	$                 315.00	per Inspections	515	$        162,225.00	370	$      116,550.00
Rework	$         55,000.00	250	Rework orders	$                 220.00	per Rework orders	160	$          35,200.00	90	$        19,800.00
Support
Purchasing	$      183,595.00	503	Purchase orders	$                 365.00	per Purchase orders	335	$        122,275.00	168	$        61,320.00
Providing space and utilities	$         68,760.00	3,600	Units	$                   19.10	per Units	1,200	$          22,920.00	2,400	$        45,840.00
					Total overhead cost		$        981,385.00		$ 1,070,375.00
					Total units produced		1,200		2,400
					Overhead cost per unit		$                817.82		$              445.99

• Requirement 2

	Model 145	Model 212
Materials and Labor per unit	$               220.00	$          122.00
Overhead cost per unit	$               817.82	$          445.99
Total cost per unit	$           1,037.82	$          567.99

• Requiremet 3

	Model 145	Model 212
Price per unit	$           1,038.38	$          568.36
Cost per unit	$           1,037.82	$          567.99
Profit (loss) per unit	$                   0.56	$               0.37