Question

Exercise 04-11 Using ABC to assess prices LO P3 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 Components Activity Changeover Machining Setups Quantity Overhead Cost $ 460,650 364,381 225,600 $1,050,631 $ 338,240 339,300 Driver Number of batches Machine hours Number of setups 7,870 120 Finishing Welding Inspecting Rework Welding hours Number of inspections Rework orders 5,60e Support $ $ Purchasing Providing space Providing utilities 736,540 137,400 31,400 se.289 Purchase orders Number of units Number of units 6, 6.ee Additional production information concerning its two product lines follows Model 145 Units produced Welding hours Batches Number of inspections Machine hours 5, Rework orders Purchase orders 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 $220 for Model 145 and $115 for Model 212 3. If the market price for Model 145 is $70736 and the market price for Model 212 is $381.04, determine the profit or loss per unit for each model Complete this question by entering your answers in the tabs below.

Answer 1

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Way Cool	Answer 1
Calculation of ABC rates for overhead			A	B	C=B/A
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Components	Changeover	Number of batches	460,650.00	830.00	555.00
	Machining	Machine hours	364,381.00	7,870.00	46.30
	Setups	Number of Setups	225,600.00	120.00	1,880.00
	Total Cost assigned		1,050,631.00
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Finishing	Welding	Welding hours	338,240.00	5,600.00	60.40
	Inspecting	Number of inspections	339,300.00	870.00	390.00
	Rework	Rework orders	59,000.00	200.00	295.00
	Total Cost assigned		736,540.00
Process	Activity cost pool	Cost Driver	Cost	Quantity	ABC rates
Support	Purchasing	Purchase orders	137,400.00	458.00	300.00
	Providing space	Number of units	31,400.00	6,000.00	5.23
	Providing utilities	Number of units	80,200.00	6,000.00	13.37
	Total Cost assigned		249,000.00
			See C	D	D=C*D	E	F=C*E
	Allocation table			Model 145		Model 212
Process	Activity cost pool	Cost Driver	ABC Rates	Activity used	Cost assigned	Activity used	Cost assigned
Components	Changeover	Number of batches	555.00	415.00	230,325.00	415.00	230,325.00
	Machining	Machine hours	46.30	2,550.00	118,065.00	5,320.00	246,316.00
	Setups	Number of Setups	1,880.00	60.00	112,800.00	60.00	112,800.00
Finishing	Welding	Welding hours	60.40	2,600.00	157,040.00	3,000.00	181,200.00
	Inspecting	Number of inspections	390.00	490.00	191,100.00	380.00	148,200.00
	Rework	Rework orders	295.00	120.00	35,400.00	80.00	23,600.00
Support	Purchasing	Purchase orders	300.00	305.00	91,500.00	153.00	45,900.00
	Providing space	Number of units	5.23	2,000.00	10,466.67	4,000.00	20,933.33
	Providing utilities	Number of units	13.37	2,000.00	26,733.33	4,000.00	53,466.67
	Total Cost assigned				973,430.00		1,062,741.00	G
	Number of units				2,000.00		4,000.00	H
	Overhead cost per unit				486.72		265.69	I=G/H
Answer 2		Model 145	Model 212	Note
	Direct material and direct labor	220.00	115.00	J
	OH cost per unit	486.72	265.69	See I
	Total cost per unit	706.72	380.69	K=J+1
Answer 3		Model 145	Model 212	Note
	Market price per unit	707.36	381.04	L
	Total cost per unit	706.72	380.69	See K
	Profit/(loss) per unit	0.65	0.35	M=L-K