Question

WHY ARE THE ANSWERS ON MY SAMPLE QUESTION INCORRECT?

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 Quantity 890 8,310 200 Finishing Welding Inspecting Rework Overhead Cost Driver $ 452,000 Number of batches 311,000 Machine hours 226,000 Number of setups $ 989,000 $ 192,000 Welding hours 221,000 Number of inspections 61,500 Rework orders $ 474,500 $ 143,000 Purchase orders 32,000 Number of units 66,000 Number of units $ 241,000 5,800 845 230 Support Purchasing Providing space Providing utilities 465 5, 220 5,220 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 2,200 1,800 445 475 3,050 Model 212 3,020 4,000 445 370 5,260 100 80 155 310 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 $190 for Model 145 and $190 for Model 212. 3. If the market price for Model 145 is $1,700 and the market price for Model 212 is $270, determine the profit or loss per unit for each model.

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	$989,000.00	Machine hours	8310	$119.01	3050	$362,981	5260	$625,993
Finishing	$474,500.00	Welding hours	5800	$81.81	1800	$147,258	4000	$327,240
Support	$241,000.00	Purchase orders	465	$518.28	310	$160,667	155	$80,333
Total						$670,905		$1,033,566
Nos of units						2200		3020
Overhead cost per unit						$304.96		$342.24

Solution 2:

Computation of Per unit Cost
Particulars	Model 145	Model 212
Direct material and labor	$190.00	$190.00
Overhead cost per unit	$304.96	$342.24
Cost per unit	$494.96	$532.24

Solution 3:

Computation of Profit (Loss) per unit
Particulars	Model 145	Model 212
Selling price per unit	$1,700.00	$270.00
Cost per unit	$494.96	$532.24
Profit (Loss) per unit	$1,205.04	-$262.24