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 Activity Components Changeover Machining Quantity 730 7,630 Overhead Cost Driver Process 478,150 347,928 221,400 Number of batches Machine hours Number of setups 120 Setups $1,047,478 Welding Finishing 414,800 270,400 49,300 Welding hours 6,100 Number of inspections Inspecting Rework 845 Rework orders 170 734,500 193,655 30,300 Purchase orders Number of units Purchasing Providing space Providing utilities 503 Support 7,800 7,800 121,020 Number of units 344,975 Additional production information concerning its two product lines follows. Model 145 2,600 2,000 Model 212 Units produced Welding houars Batches 5,200 4,100 365 365 umber of inspections Machine hours 485 360 2,350 5,280 60 60 Setups Rework orders Purchase orders 130 40 335 168 Required: 1. Using ABC, compute the overhead cost per unit for each product line 2. Determine the total cost per unit for eacth product line if the direct labor and direct materials costs per unit are $180 for Model 145 and $118 for Model 212 3. If the market price for Model 145 is $551.88 and the market price for Model 212 is $341.74, 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	478,150	730	Number of batches	655.00	per batch	365	239,075	365	239075
Machining	347,928	7,630	Machine hours	45.60	per machine hour	2,350	107,160	5,280	240768
Setups	221,400	120	Setups	1845.00	per setup	60	110,700	60	110700
Finishing
Welding	414,800	6,100	Welding hours	68.00	per welding hour	2000	136,000	4100	278800
Inspecting	270,400	845	Inspections	320.00	per inspection	485	155,200	360	115200
Rework	49,300	170	Rework orders	290.00	per rework order	130	37,700	40	11600
Support
Purchasing	193,655	503	Purchase orders	385.00	per purchase order	335	128,975	168	64680
Providing space and utilities	151,320	7,800	Units	19.40	per unit	2,600	50,440	5,200	100880
					Total overhead cost		965,250		1,161,703
					Total units produced		2,600		5,200
					Overhead cost per unit		371.25		223.40
2
	Model 145	Model 212
Materials and Labor per unit	180.00	118.00
Overhead cost per unit	371.25	223.40
Total manufacturing cost	551.25	341.40
3
	Model 145	Model 212
Price per unit	551.88	341.74
Cost per unit	551.25	341.40
Profit(loss) per unit	0.63	0.34