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	Overhead Cost				Driver	Quantity
Components	Changeover		$	470,000		Number of batches	770
	Machining			305,000		Machine hours	7,900
	Setups			232,000		Number of setups	120
			$	1,007,000
Finishing	Welding		$	186,000		Welding hours	4,000
	Inspecting			221,000		Number of inspections	860
	Rework			65,000		Rework orders	210
			$	472,000
Support	Purchasing		$	145,000		Purchase orders	471
	Providing space			34,500		Number of units	4,950
	Providing utilities			62,000		Number of units	4,950
			$	241,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,900			3,050
Welding hours		1,000			3,000
Batches		385			385
Number of inspections		490			370
Machine hours		2,550			5,350
Setups		60			60
Rework orders		80			130
Purchase orders		314			157

Required:
1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $200 for Model 145 and $120 for Model 212.
3. If the market price for Model 145 is $1,850 and the market price for Model 212 is $250, determine the profit or loss per unit for each model.

Components department Finishing department Support department Model 145 Activity Driver Departmental OH Rate Total Overhead Cost Components Finishing Support Model 212 Activity Driver Departmental OH Rate Total Overhead Cost Components Finishing Support

Answer 1

Solution 1:

Computation of Departmental Overhead rates and overhead cost per unit
Department	Overhead cost	Allocation Base	Qty of allocation base	Overhead rate	Model 145		Model 212
					Activity Driver	Allocated Overhead cost	Activity Driver	Allocated Overhead cost
Components	$1,007,000.00	Machine hours	7900	$127.47	2550	$325,044	5350	$681,956
Finishing	$472,000.00	Welding hours	4000	$118.00	1000	$118,000	3000	$354,000
Support	$241,500.00	Purchase orders	471	$512.74	314	$161,000	157	$80,500
Total						$604,044		$1,116,456
Nos of units						1900		3050
Overhead cost per unit						$317.92		$366.05

Solution 2:

Computation of Per unit Cost
Particulars	Model 145	Model 212
Direct material and labor	$200.00	$120.00
Overhead cost per unit	$317.92	$366.05
Cost per unit	$517.92	$486.05

Solution 3:

Computation of Profit (Loss) per unit
Particulars	Model 145	Model 212
Selling price per unit	$1,850.00	$250.00
Cost per unit	$517.92	$486.05
Profit (Loss) per unit	$1,332.08	-$236.05