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. Process Activity Overhead Cost Driver Quantity Components Changeover $ 477,950 Number of batches 790 Machining 379,790 Machine hours 8,150 Setups 298,400 Number of setups 160 $ 1,156,140 Finishing Welding $ 366,980 Welding hours 5,900 Inspecting 253,575 Number of inspections 805 Rework 44,650 Rework orders 190 $ 665,205 Support Purchasing $ 158,400 Purchase orders 495 Providing space 30,500 Number of units 5,100 Providing utilities 65,380 Number of units 5,100 $ 254,280 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 1,700 3,400 Welding hours 2,000 3,900 Batches 395 395 Number of inspections 495 310 Machine hours 2,850 5,300 Setups 80 80 Rework orders 120 70 Purchase orders 330 165 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 $240 for Model 145 and $115 for Model 212. 3. If the market price for Model 145 is $809.48 and the market price for Model 212 is $441.35, determine the profit or loss per unit for each model.

Answer 1

Please find below table useful to compute desired results: -

A 2 Process 3 Components cow Finishing B C D Particulars Given Activity Overhead Cost Driver Quantity Changeover 477950 Number of batches 790 Machining 379790 Machine hours 8150 Setups 298400 Number of setups 160 =SUM(C3-C5) Welding 366980 Welding hours 5900 Inspecting 253575 Number of inspections 805 Rework 44650 Rework orders 190 =SUM(C7:09) Purchasing 158400 Purchase orders Providing space 30500 Number of units Providing utilities 65380 Number of units 5100 =SUM(C11:C13) 11 Support 495 13 15 16 Model 145 1700 2000 395 495 2850 Model 212 3400 3900 395 310 5300 17 Units produced 18 Welding hours 19 Batches 20 Number of inspections 21 Machine hours 22 Setups 23 Rework orders 24 Purchase orders 25 2. Direct labor and materials 26 3. Market Price 27 120 330 240 809.48 80 70 165 115 441.35

H -C5 K9*L9 -C20 =F11 =C24 L M N Computation of overhead cost per unit Model 145 Model 212 Activity Expected Costs Expected Activity Activity Rate Activity driver incurred Overhead Assigned Activity Driver incurred Overhead Assigned Components Changeover =C3 =E3 Number of batches =H4/14 =B19 K4*L4 =C19 =N4*K4 Machining =C4 =E4 Machine Hours =H5/15 I=B21 =K5*L5 =C21 =N5*K5 Setups =E5 Setups =H6/16 =B22 =K6*L6 =C22 =N6*K6 Finishing Welding 1=E7 Welding Hours =H8/18 =B18 =K8*L8 =C18 =N8*K8 Inspecting =E8 Inspections =H9/19 =B20 =K9*L9 =C20 =N9*K9 Rework =E9 Rework orders =H10/110 =B23 =K10*L10 =C23 =N10*K10 Support Purchasing =C11 Purchase Orders =H12/112 =B24 =K12*L12 =N12*K12 Providing space and Utilities =C12+C13 =E12 Units =H13/I13 =B17 =K13*L13 =C17 =N13*K13 Providing utilities Total Overhead cost =SUMM4:M13) =SUM(04:013) Total Units produced =B17 =C17 Overhead Cost per unit =M15/M16 =O15/016 Computation of Total cost per unit Model 145 Model 212 Materials and Labor per Unit =B25 =C25 Overhead per unit =M17 Total Cost per unit =SUM(H20:H21) =SUM(120:121) Calculation of Profit and Loss for each Product Model 145 Model 212 Price per Unit =B26 =C26 Cost per unit =H22 =122 Profit(loss) per unit =H25-26 =125-126 Activate Windows =O17

End results would be as follows: -

А 2 3 Process Components Quantity 790 8.150 160 Finishing B D Particulars Given Activity Overhead Cost Driver Changeover 477,950 Number of batches Machining 379,790 Machine hours Setups 298,400 Number of setups 1,156,140 Welding 366,980 Welding hours Inspecting 253,575 Number of inspections Rework 44,650 Rework orders 665.205 Purchasing 158.400 Purchase orders Providing space 30,500 Number of units Providing utilities 65,380 Number of units 254,280 5.900 805 190 11 Support 495 5.100 5,100 15 16 Model 145 17 1,700 2.000 18 Model 212 3,400 3.900 395 310 5,300 395 20 495 2.850 Units produced Welding hours 19 Batches Number of inspections 21 Machine hours 22 Setups 23 Rework orders 24 Purchase orders 25 2. Direct labor and materials 26 3. Market Price 27 80 120 330 240 809.48 70 165 115 441.35

H Computation of overhead cost per unit Expected Costs Expected Activity м Model 145 Activity driver incurred Overhead Assigned NO Model 212 Activity Driver incurred Overhead Assigned Activity Rate 477.950 379.790 298,400 790 Number of batches 8.150 Machine Hours 160 Setups 605 46.60 1.865 395 2.850 80 238.975 132,810 149,200 395 5,300 80 238,975 246,980 149,200 Activity Components Changeover Machining Setups Finishing Welding Inspecting Rework Support Purchasing Providing space and Utilities Providing utilities 366.980 253,575 44,650 5,900 Welding Hours 805 Inspections 190 Rework orders 62.20 315 235 2,000 495 120 124.400 155,925 28,200 3.900 310 70 242,580 97,650 16,450 320 158.400 95.880 495 Purchase Orders 5,100 Units 330 1,700 105,600 31,960 165 3.400 52.800 63.920 18.80 Total Overhead cost Total Units produced Overhead Cost per unit 967,070 1,700 568.86 1,108,555 3,400 326.05 Computation of Total cost per unit Model 145 Model 212 Materials and Labor per Unit 240 115 Overhead per unit 568.86 326.05 Total Cost per unit 808.86 441.05 Calculation of Profit and Loss for each Product Model 145 Model 212 Price per Unit 809.48 441.35 Cost per unit 808.86 441.05 Profit(loss) per unit 0.30 0.62 Activate Windows