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 Overhead Cost $ 416,250 389,880 224,400 $1,030,530 Driver Number of batches Machine hours Number of setups Quantity 750 8,550 120 5,600 Finishing Welding Inspecting Rework $ 281,680 311,500 44,100 $ 637,280 Welding hours Number of inspections Rework orders 210 Support Purchasing Providing space Providing utilities $ 208,050 31,100 127,660 $ 366,810 Purchase orders Number of units Number of units 570 8,400 8,400 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 2,800 2,000 375 490 3,250 Model 212 5,600 3,600 375 400 5,300 60 120 190 60 90 380 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 $240 for Model 145 and $113 for Model 212. 3. If the market price for Model 145 is $580.25 and the market price for Model 212 is $306.81, determine the profit or loss per unit for each model.

Answer 1

						Model 145		Model 212
Activity	Expected Costs	Expected Activity		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	416,250	750	Number of batches	555.00	per batch	375	208,125	375	208125
Machining	389,880	8,550	Machine hours	45.60	per machine hour	3,250	148,200	5,300	241680
Setups	224,400	120	Setups	1870.00	per setup	60	112,200	60	112200
Finishing
Welding	281,680	5,600	Welding hours	50.30	per welding hour	2000	100,600	3600	181080
Inspecting	311,500	890	Inspections	350.00	per inspection	490	171,500	400	140000
Rework	44,100	210	Rework orders	210.00	per rework order	90	18,900	120	25200
Support
Purchasing	208,050	570	Purchase orders	365.00	per purchase order	380	138,700	190	69350
Providing space and utilities	158,760	8,400	Units	18.90	per unit	2,800	52,920	5,600	105840
					Total overhead cost		951,145		1,083,475
					Total units produced		2,800		5,600
					Overhead cost per unit		339.69		193.48
2
	Model 145	Model 212
Materials and Labor per unit	240.00	113.00
Overhead cost per unit	339.69	193.48
Total cost per unit	579.69	306.48
3
	Model 145	Model 212
Price per unit	580.25	306.81
Cost per unit	579.69	306.48
Profit(loss) per unit	0.56	0.33