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 Components Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 830 8,060 Finishing Welding Inspecting Rework Overhead Cost $ 518,750 374, 790 262,500 $1,156,040 $ 388,740 285,600 78,300 $ 752.640 $ 170,280 30,800 124,600 $ 325,680 Welding hours Number of inspections Rework orders 5,700 840 290 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 473 8,400 8,400 Additional production information concerning its two product lines follows. Model 145 2,800 2,400 Model 212 5.600 Units produced Welding hours 3.300

Answer 1

1. Using ABC, compute the overhead cost per unit for each product line
						Model 145		Model 212
Activity	Expected costs (a)	Expected activity (b)		Activity Rate (c = a / b)		Activity drivers (d)	Overhead assigned (c x d)	Activity drivers (e)	Overhead assigned (c x e)
Components:
Chnageover	$518,750	830	batches	$625.00	per batch	415	$259,375	415	$259,375
Machining	$374,790	8,060	machine hours	$46.50	per machine hour	2,750	$127,875	5,310	$246,915
Setups	$262,500	140	setups	$1,875.00	per setup	70	$131,250	70	$131,250
Finishing:
Welding	$388,740	5,700	wielding hours	$68.20	per wielding hour	2,400	$163,680	3,300	$225,060
Inspecting	$285,600	840	inspections	$340.00	per inspection	460	$156,400	380	$129,200
Rework	$78,300	290	rework orders	$270.00	per rework order	160	$43,200	130	$35,100
Support:
Purchasing	$170,280	473	purchase orders	$360.00	per purchase order	315	$113,400	158	$56,880
Providing space and utilities	$155,400 [$30,800 + $124,600]	8,400	units	$18.50	per unit	2,800	$51,800	5,600	$103,600
						Total overhead costs                     (f)	$1,046,980		$1,187,380
						Total units produced                      (g)	2,800		5,600
						Overhead cost per unit                   (f / g)	373.92		212.03

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2. The total cost per unit for each product line
	Model 145	Model 212
Materials and labor per unit                       (h)	$220.00	$118.00
Overhead per unit   [Calculated above]       (i)	$373.92	$212.03
Total cost / Case                                        (h + i)	$593.92	$330.03

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3. Profit or loss per unit for each mode
	Model 145	Model 212
Price per unit                                               (j)	$594.56	$330.41
Cost per unit           [Calculated above]       (k)	$593.92	$330.03
Profit (loss) per unit                                    (j - k)	$0.64	$0.38