Question

Exercise 04-9 Using departmental overhead rates to assess prices LO P2 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 Quantity 890 8, 540 120 Rook Finishing Welding Inspecting Rework Overhead Cost Driver $ 460, eee Number of batches 309, eoe Machine hours 234, eee Number of setups $1,003,000 $ 192,000 Welding hours 221,000 Number of inspections 62,500 Rework orders $ 475,500 $ 135,000 Purchase orders 38,500 Number of units 62,000 Number of units $ 235,500 4,000 930 220 Support Purchasing Providing space Providing utilities 477 4,950 4,950

Answer 1

Department Overhead Activity (B) Departmental Overhead Cost (A) $ 1,003,000 $ 475,500 $ 235,500 Departmental Overhead Rate (A/B) $ 117.45 $ 118.88 $ 493.71 Components Finishing Support 8540 Machine hours 4000 Welding hours 477 No. of purchase orders Model 415 Activity Driver Departmental OH Rate Total Overhead Cost 3250 $ 800 $ 318 $ 117.45 118.88 493.71 Components Finishing Support Total Overhead Cost assigned No. of Units produced Overhead cost per unit $ $ $ $ 381,704 95,100 157,000 633,804 1900 333.58 $ Model 212 Activity Driver Departmental OH Rate Total Overhead Cost 5290 $ 3200 $ 159 $ Components Finishing Support Total Overhead Cost assigned No. of Units produced Overhead cost per unit 117.45 $ 118.88 $ 493.71 $ $ 621,296 380,400 78,500 1,080,196 3050 354.16 $

Computation of Total Cost per Unit Material & Labour per Unit Overhead cost per Unit Total Cost PerUnit Model 415 $ 230.00 $ $ 333.58 $ $ 563.58 $ Model 212 140.00 354.16 494.16 Computation of Profit (Loss) Price per Unit Less :Cost per Unit Profit (Loss) per Unit Model 415 Model 212 $ 2,000.00 $ $ (563.58) $ $ 1,436.42 $ 260.00 (494.16) (234.16)