Question

Process Activity Components Changeover Machining Setups Quantity 870 7,670 140 Finishing Welding Inspecting Rework Overhead Cost Driver $458,500 Number of batches 301, 600 Machine hours 227,000 Number of setups $987, 100 $181,300 Welding hours 223,000 Number of inspections 61, 150 Rework orders $ 465,450 $135,000 Purchase orders 30,900 Number of units 60, 900 Number of units $ 226,800 5,000 795 170 Support Purchasing Providing space Providing utilities 465 4,200 4,200 Additional production information concerning its two product lines follows. Units produced welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders Model 145 1,400 1,800 435 480 2,270 70 Model 212 2, 800 3, 200 435 315 5.400 119 310

Answer 1

1) Overhead rate based on machine hour
Total overhead cost
Components		$ 987,100
Finishing		$ 465,450
Support		$ 226,800
Total overhead		$ 1,679,350
Machine hours		7670 hrs
Overhead rate		=($1,679,350/7670 hrs)

= $ 218.95 per machine hour

1 Overhead cost per unit for each product line

Particulars	Model 145	Model 212
Overhead rate( per machine hour)	$ 218.95	$ 218.95
Machine hour in product line	2270 hr	5400 hr
Total overhead cost	=(2270hr. x 218.95) = $ 497,016.5	=(5400 hr. x 218.95) = $ 1,182,330
Total no. of units produced	1400 units	2800 units
Overhead cost per unit = (Total overhead cost/ Total no. of units produced)	= ($ 497,016.5/ 1400 units) = $ 355.01 per unit	= ($1,182<330/2800 units) = $ 422.26 per unit

2. Calculation of total cost per unit

Total cost per unit	Model 145	Model 212
Material and Labour	$           220	$                  190
Overhead cost per unit(based on machine hour)	$     355.01	$            422.26
Total cost per unit	$     575.01	$            612.26

3) Profit/ loss per unit :-

	Model 145	Model 212
Market price	$                734	$                  470
Less :- Total manufacturing cost	$          575.01	$            612.26
Profit/(Loss) per unit	$          158.99	$          (142.26)