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

					Model 145	Model 212
Activity	Expected Costs	Expected Activity	Activity Rate	Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	$477,950	790	Number of batches	$605.00	per batch	395	$238,975	395	$238,975
Machining	379,790	8,150	Machine hours	$46.60	per machine hour	2,850	132,810	5,300	$246,980
Setups	298,400	160	Setups	$1,865.00	per setup	80	$149,200	80	$149,200
Finishing
Welding	$366,980	5,900	Welding hours	$62.20	per welding hour	2000	$124,400	3900	$242,580
Inspecting	253,575	805	Inspections	$315.00	per inspection	495	$155,925	310	$97,650
Rework	44,650	190	Rework orders	$235.00	per rework order	120	$28,200	70	$16,450
Support
Purchasing	$158,400	495	Purchase orders	$320.00	per purchase order	330	$105,600.00	165	$52,800.00
Providing space and utilities	95,880	5,100	Units	$18.80	per unit	1,700	$31,960.00	3400	$63,920.00
					Total overhead cost		967070		1108555
					Total units produced		1,700		3,400
					Overhead cost per unit		568.86		326.05

	Model 145	Model 212
Materials and Labor per unit	$240.00	$115.00
Overhead per unit	568.86	326.05
Total cost per unit	$808.86	$441.05
3
	Model 145	Model 212
Price per unit	$809.48	$441.35
Cost per unit	808.86	441.05
Profit (loss) per unit	$0.62	$0.30