Question

mework 0 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 Components Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 890 8,440 40 Finishing Welding Inspecting Rework Overhead Cost $ 556,250 390,772 73,600 $1,020,622 $ 345,870 300,600 29,400 $ 675,870 $ 155,930 31,800 53,250 240.980 Welding hours Number of inspections Rework orders 6,100 B35 140 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 503 4,500 4.500 Additional production information concerning its two product lines follows. Model 212 3,000 3,700 Model 145 1,500 2,400 445 465 3,150 445 Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders 370 5,290 20 20 70 70 335 168 < Prey 4 of 14 Next >

Answer 1

Under activity based costing activity rate for each activity is calculated
				Model 145		Model 212
Activity	Expected costs	Expected activity	Activity rate	Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	$556,250	890	$625.00	445	$278,125	445	$278,125
Machining	$390,772	8440	$46.30	3150	$145,845	5290	$244,927
Setups	$73,600	40	$1,840.00	20	$36,800	20	$36,800
Finishing
Welding	$345,870	6100	$56.70	2400	$136,080	3700	$209,790
Inspecting	$300,600	835	$360.00	465	$167,400	370	$133,200
Rework	$29,400	140	$210.00	70	$14,700	70	$14,700
Support
Purchasing	$155,930	503	$310.00	335	$103,850	168	$52,080
Providing space	$31,800	4500	$7.07	1500	$10,600	3000	$21,200
Providing utilities	$53,250	4500	$11.83	1500	$17,750	3000	$35,500
			Total overhead cost		$911,150		$1,026,322
			Total units produced		1500		3000
			Overhead cost per unit		$607.43		$342.11
Activity rate = Expected costs/Expected activity
Overhead assigned = Activity rate*Activity driver incurred
Overhead cost per unit = Total overhead cost/Total units produced
Calculation of total cost per unit for each product is shown below
	Model 145	Model 212
Materials and labor per unit	$210.00	$115.00
Overhead cost per unit	$607.43	$342.11
Total cost per unit	$817.43	$457.11
Calculation of profit or loss per unit
	Model 145	Model 212
Price per unit	$818.04	$457.51
Cost per unit	$817.43	$457.11
Profit (loss) per unit	$0.61	$0.40