Question

Exercise 17-7 Using the plantwide overhead rate to assess prices LO P1 Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their 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. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.) Process Activity Overhead Cost Driver Quantity Components Changeover $ 458,500 Number of batches 750 Machining 300,400 Machine hours 7,490 Setups 228,000 Number of setups 140 $ 986,900 Finishing Welding $ 182,300 Welding hours 5,000 Inspecting 231,000 Number of inspections 720 Rework 61,300 Rework orders 180 $ 474,600 Support Purchasing $ 135,500 Purchase orders 488 Providing space 31,450 Number of units 5,400 Providing utilities 60,720 Number of units 5,400 $ 227,670 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 1,800 3,600 Welding hours 1,600 3,400 Batches 375 375 Number of inspections 465 255 Machine hours 2,290 5,200 Setups 70 70 Rework orders 120 60 Purchase orders 325 163

1. Using a plantwide overhead rate based on machine hours, 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 $200 for Model 145 and $170 for Model 212. Units Activity Plantwide OH Driver OH Cost per unit Overhead Assigned Model 145 Model 212 Total Overhead Cost rate Model 145 Model 212 3. If the market price for Model 145 is $759 and the market price for Model 212 is $460, determine the profit or loss per unit for each model. Model 145 Model 212 Market price

Answer 1

Answer

• Requirement 1

TOTAL Overhead cost	$        1,689,170.00	$                      225.52	per machine hours
Total Machine hours	7,490

--Working

Changeover	$            458,500.00
Machining	$            300,400.00
Setups	$            228,000.00	$             986,900.00
Finishing
Welding	$            182,300.00
Inspecting	$            231,000.00
Rework	$              61,300.00	$             474,600.00
Support
Purchasing	$            135,500.00
Providing space and utilities	$              92,170.00	$             227,670.00
TOTAL Overhead cost		$          1,689,170.00

• Requirement 2

Overhead assigned	Activity Driver	Plantwide OH rate	Total Overhead cost	Units produced	OH cost per unit
Model 145	2,290	$                      225.52	$             516,440.80	1,800	$ 286.91
Model 212	5,200	$                      225.52	$          1,172,704.00	3,600	$ 325.75

	Model 145	Model 212
Direct Material and Direct Labor [Prime Cost]	$                    200.00	$                      170.00
Manufacturing Overheads	$                    286.91	$                      325.75
Total Cost per unit	$                    486.91	$                      495.75

• Requirement 3

	Model 145	Model 212
Market Price	$                    759.00	$                      460.00
Total Cost per unit	$                    486.91	$                      495.75
Profit (Loss) per unit	$                    272.09	$                      (35.75)