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. (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	Overhead Cost				Driver	Quantity
Components	Changeover		$	457,000		Number of batches	750
	Machining			300,800		Machine hours	7,690
	Setups			226,500		Number of setups	200
			$	984,300
Finishing	Welding		$	182,900		Welding hours	4,200
	Inspecting			230,000		Number of inspections	840
	Rework			60,700		Rework orders	210
			$	473,600
Support	Purchasing		$	137,000		Purchase orders	533
	Providing space			30,100		Number of units	4,800
	Providing utilities			60,130		Number of units	4,800
			$	227,230

   

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	Overhead Cost				Driver	Quantity
Components	Changeover		$	470,000		Number of batches	770
	Machining			313,000		Machine hours	8,220
	Setups			228,000		Number of setups	140
			$	1,011,000
Finishing	Welding		$	188,000		Welding hours	5,300
	Inspecting			226,000		Number of inspections	855
	Rework			64,000		Rework orders	160
			$	478,000
Support	Purchasing		$	143,000		Purchase orders	549
	Providing space			31,500		Number of units	5,120
	Providing utilities			70,000		Number of units	5,120
			$	244,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,000			3,120
Welding hours		2,000			3,300
Batches		385			385
Number of inspections		495			360
Machine hours		2,950			5,270
Setups		70			70
Rework orders		100			60
Purchase orders		366			183

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 $230 for Model 145 and $200 for Model 212.
3. If the market price for Model 145 is $2,000 and the market price for Model 212 is $260, determine the profit or loss per unit for each model.

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Answer 1

Solution 1 (B) Process Components Finshing Support Total Overhead Bais of (A) Allocation 10,11,000 Machine hours 4,78,000 Welding hours 2,44,500 Purchase orders Overhead Total of drivers Allocation (A/B) 8220 122.99 per hours 5300 90.19 per hours 445.36 per order 549 Model 145 Model 212 2000 3120 3,62,828.47 6,48,171.53 Units produced (A) Process - Components Model 145= $122.99 x 2950 hours, Model 212 = $122.99 x 5270 hours Process - Finishing Model 145= $90.19 x 2000 hours, Model 212 = $90.19 x 3300 hours Process - Support Model 145= $445.36 x 336 orders, Model 212 = $445.36 x 183 orders Total Overhead costs (B) 1,80,377.36 2,97,622.64 1,63,000.00 7,06,205.83 81,500.00 10,27,294.17 per unit overhead cost (B/A) $ 353.10 $ 329.26

Solution 2 Statement showing Driver rate Process Activity Components Changeover Machining Setup Overhead Cost (A) Driver 4,70,000 No of Batches 3,13,000 Machine hours 2,28,000 No of Setups Driver Qty (B) 770 8,220 140 Cost per driver (A/B) 610.39 per batch 38.08 per machine hour 1,628.57 per setup Finishing Welding Inspection Rework 1,88,000 Welding hours 2,26,000 No of Inspections 64,000 Rework Orders 5,300 855 160 35.47 per hour 264.33 per inspection 400.00 per order Support Purchasing Providing space Providing Utilities 1,43,000 Purchase orders 31,500 No of units 70,000 No of units 549260.47 per order 5,120 6.15 per unit 5,120 13.67 per unit

Determinantion of Cost of Each Model - Activity Based Costing Model -145 Model-212 Particulars Direct material and labour Components Changeover Machining Setup Cost (A) Driver (B) 230 2000 units 610.39 385 batches 38.08 2950 hours 1628.57 70 setups Amount (AxB) 4,60,000 2,35,000 1,12,330 1,14,000 Cost (C) Driver (D) 200.00 3120 units 610.39 385 batches 38.08 5270 hours 1628.57 70 setups Amount (CxD) 6,24,000 2,35,000 2,00,670 1,14,000 Finishing Welding Inspection Rework 35.47 2000 hours 264.33 495 inspections 400.00 100 orders 70,943 1,30,842 40,000 35.47 3300 hours 264.33 360 inspections 400.00 60 orders 1,17,057 95,158 24,000 Support Purchasing Providing space Providing Utilities 366 purchase 260.47 orders 6.15 2000 units 13.67 2000 units 95,333 12,305 27,340 183 purchase 260.47 orders 6.15 3120 units 13.67 3120 units 47,667 19,195 42,650 1. Total Cost of Models II. No of Units 12,98,093 2000 15,19,397 3120 per unit cost of Model (1/11) 649.05 486.99 Cost per Model (Based on Department Allocation rate) Particulars Model -145 Model-212 Direct Material & Labour $ 230.00 $ 200.00 Allocated per unit over head (Solution 1) 353.10 $ 329.26 Per unit Cost 583.10 $ 529.26

Solution 3. Determination Profit or Loss (Based on Activity Based Costing) Particulars Model -145 Model -212 Market Price of Model $ 2,000.00 $ 260.00 Less: Per unit cost $ 649.05 $ 486.99 per unit Profit/ - Loss $ 1,350.95 $ -226.99 Determination Profit or Loss (Department allocated costing) Particulars Model -145 Model-212 Market Price of Model $ 2,000.00 $ 260.00 Less: Per unit cost $ 583.10 $ 529.26 per unit Profit/ - Loss $ 1,416.90 $ -269.26

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