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 assocated with these two manufacturing processes and the production support process follow Process Activity Components changeover Machining Setups Overhead Cost Driver Quantity Number of $500,000 batches 300 279,000 Machine hours 6,000 Number of 225,000 120 setups $1,004,000 $ 180,300 Welding hours 3,000 Number of 210,000 700 inspections 75,000 Rework orders $ 465,300 $ 135,000 Purchase orders 450 32,000 Number of units 5,000 es Finishing Welding Inspecting Rework Support Purchasing Providing space Providing utilities 65,000 Number of units 5,000 232,000 $ Additional production Information concering its two product lines follows. Model 145 Model 212 1,500 3,500 800 2.200 400 400 Un to produced Welding hours Batehen Number of inspections Machine hours Setupa Revork orders Purchase orders 400 300 4,200 1,800 60 160 300 140 150 Required: 1. Determine departmental overhead rates and compute the overhead cost per unit for each product the 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 $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 unt for each model

Answer 1

1	Departmental overhead rate= Estimated overhead/Basis of overhead assignment
	Department			Basis of Overhead assignment
	Components department			Machine hours
	Finishing department			Welding hours
	Support department			No. of purchase orders
	Departmental overhead Rates
	Component department:
	Estimated overhead		a	1004000		167.33	Per machine hour
	Machine hours		b	6000		(a/b)
	Finishing department:
	Estimated overhead		a	465300		155.10	Per welding hour
	Welding hours		b	3000		(a/b)
	Support department:
	Estimated overhead		a	232000		515.56	Per purchase order
	No. of purchase orders		b	450		(a/b)
	Overhead cost per unit:
	Model 145			Activity driver		Departmental overhead Rates	Total overhead cost
					a	b	(a*b)
	Components department			Machine hours	1800	167.33	301200
	Finishing department			Welding hours	800	155.10	124080
	Support department			No. of purchase orders	300	515.56	154667
	Total overhead costs		c				579947
	Units produced		d				1500
	Overhead cost per unit		(c/d)				386.63
	Model 212			Activity driver		Departmental overhead Rates	Total overhead cost
					a	b	(a*b)
	Components department			Machine hours	4200	167.33	702800
	Finishing department			Welding hours	2200	155.10	341220
	Support department			No. of purchase orders	150	515.56	77333
	Total overhead costs		c				1121353
	Units produced		d				3500
	Overhead cost per unit		(c/d)				320.39
2					Model 145	Model 212
	Materials and labor per unit				250	180
	Overhead cost per unit				386.63	320.39
	Total cost per unit				636.63	500.39
3					Model 145	Model 212
	Market price per unit				820	480
	Less: Cost per unit				644.72	542.82
	Profit (loss) per unit				175.28	-62.82