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. Driver Number of batches Activity Components Changeover Machining Setups Overhead Cost Quantity Process $613,350 870 Machine hours 396,460 8,600 Number of setups 110,700 60 $1,120,510 339,360 314,000 Welding hours Number of inspections Rework orders Finishing Welding Inspecting Rework 5,600 785 180 48,600 701,960 Purchasing Providing space Providing utilities 176,120 30,800 50,680 Purchase orders Support 518 Number of units 4,200 4,200 Number of units 257,600 Additional production information concerning its two product lines follows. Model 145 1,400 1,400 Model 212 Units produced Welding hours 2,800 4,200 Batches 435 435 Number of inspections 465 320 Machine hours 3,250 5,350 Setups 30 30 Rework orders 140 40 Purchase orders 345 173 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 $180 for Model 145 and $120 for Model 212. 3. If the market price for Model 145 is $869.92 and the market price for Model 212 is $518.65, determine the profit or loss per unit for each model.

Answer 1

Part-1 Activity Rateand overhead cost per unit
Department	Overhead cost (a)	Allocation Base	Activity Pool (B)	Overhead rate (C=A/B)	Model 145		Model 145
					Activity Driver (d)	Allocated Overhead cost (CXd)	Activity Driver ( E)	Allocated Overhead cost (CXE)
Components
Changeover	$613,350.00	No. Batches	870	$705.00	435	$306,675.00	435	$306,675.00
Mactching	$396,460.00	Machine Hour	8600	$46.10	3250	$149,825.00	5350	$246,635.00
Setup	$110,700.00	No. of Setup	60	$1,845.00	30	$55,350.00	30	$55,350.00
Finishing
Welding	$339,360.00	Welding hours	5600	$60.60	1400	$84,840.00	4200	$254,520.00
nspecting	$314,000.00	No. of Inspection	785	$400.00	465	$186,000.00	320	$128,000.00
Rework	$48,600.00	Rework Order	180	$270.00	140	$37,800.00	40	$10,800.00
Support
Purcahising	$176,120.00	Purchase orders	518	$340.00	345	$117,300.00	173	$58,820.00
Providing Space	$30,800.00	No. of Unit	4200	$7.33	1400	$10,266.67	2800	$20,533.33
Providing Utilities	$50,680.00	No. of Unit	4200	$12.07	1400	$16,893.33	2800	$33,786.67
Total						$964,950.00		$1,115,120.00
Nos of units						1400		2800
Overhead cost per unit						$689.25		$398.26

Solution 2:
Part-2
Computation of Per unit Cost
Particulars	Model 145	Model 212
Direct material and labor	$180.00	$120.00
Overhead cost per unit	$689.25	$398.26
Cost per unit	$869.25	$518.26
Solution 3:
Part-3
Computation of Profit (Loss) per unit
Particulars	Model 145	Model 212
Market Price Per Unit	$869.92	$518.65
Less: Cost per Unit	$869.25	$518.26
Profit (Loss) per unit	$0.67	$0.39