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 Components Activity Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 800 6,000 120 Finishing 3,000 Welding Inspecting Rework Overhead Cost $ 500,000 279,000 225,000 $1,004,000 $ 180,300 210,000 75,000 $ 465,300 $ 135,000 32,000 65,000 $ 232,000 Welding hours Number of inspections Rework orders 700 300 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 450 5,000 5,000 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 1,500 800 400 400 1,800 Model 212 3,500 2,200 400 300 4,200 60 140 150 160 300 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 $250 for Model 145 and $180 for Model 212. 3. If the market price for Model 145 is $820 and the market price for Model 212 is $480, determine the profit or loss per unit for each model.

Answer 1

Required :1 Model 145 Model 212 Activity Drive incurred Overhead assigned Activity Drive incurred Overhead assigned Expected Costs Expected Activity Activity Rate 400 500000 279000 225000 800 Number of batches 6000 Machine hours 120 Number of setups 625.00 Per batch 46.50 Per Machine hour 1875.00 Per Setup 400 1800 250000 83700 112500 4200 250000 195300 112500 60 Activity Components: Change over Machining Setups Finishing: Welding Inspecting Rework Support: Purchasing Provide utilities 180300 210000 75000 3000 Welding hours 700 Number of inspections 300 Rework orders 60.10 Per Welding hour 300.00 Per Inspection 250.00 Per rework order 800 400 160 48080 120000 40000 2200 300 140 1322201 90000 35000 135000 97000 450 Purchase orders 5000 Number of units 300 1500 150 3500 300.00 Per Purchase order 19.40 Per unit Total over head cost Total units produced Over head cost per unit 90000 29100 773380 1500 515.59 45000 67900 927920 3500 265.12

Required : 2 Materials and labor per unit Over head per unit Total cost Model 145 250.00 515.59 765.59 Model 212 180.00 265.12 445.12 Required :3 Price per unit Cost per unit Profit (loss) Per Unit Model 145 Model 212 820.00 480.00 765.59 445.12 54.41 34.88