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 Components Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 800 6,000 120 Finishing Welding Inspecting Rework Overhead Cost $ 500,000 279,000 225,000 $1,004,000 $. 180,300 210,000 75,000 $ 465,300 $ 135,000 32,000 65,000 232,000 Welding hours Number of inspections Rework orders 3,000 700 300 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 450 5,000 5,000 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 1,500 800 400 400 1,800 60 160 300 Model 212 3,500 2,200 400 300 4,200 60 140 150 Required: 1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.

Answer 1

1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.
Total overhead costs	$1701300	$283.55	per machine hour
Machine hours	6000
2. Determine the total cost per unit for each product line if the direct labor and direct materials cost per unit are $250 for Model 145 and $180 for Model 212
Overhead Assigned	Activity Driver	Plantwide OH rate	Total Overhead Cost	Units Produced	OH Cost per unit
Model 145	1800	$283.55	$510390	1500	$340.26
Model 212	4200	$283.55	$1190910	3500	$340.26
		Model 145	Model 212
Materials and labor		$250	$180
Overhead		340.26	340.26
Total manufacturing cost		$590.26	$520.26
3. If the market price for Model 145 is $820 and the market price for Model 212 is $480, determine the profit or loss per unit for each model.
		Model 145	Model 212
Market price		$820	$480
Total manufacturing cost		(590.26)	(520.26)
Profit(loss) per unit		$229.74	$(40.26)

Total overhead costs= Components+Finishing+Support

= $1004000+465300+232000= $1701300

Machine hours= 1800+4200= 6000

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