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

Answer 1

1
Calculate predetermined overhead rate
Predetermined overhead rate	Total overhead costs/Estimated machine hour
Predetermined overhead rate	(1004000+465300+232000)/6000
Predetermined overhead rate	1701300/6000
Predetermined overhead rate	$283.55	per machine hour
2
Calculate overhead costs per unit for each model
	Activity driver	Plantwide OH rate	Total overhead costs	Units produced	OH cost per unit
Model 145	1800	$283.55	$510,390	1500	$340.26
Model 212	4200	$283.55	$1,190,910	3500	$340.26
Calculate total costs per unit for each product line
	Model 145	Model 212
Direct labor and direct material costs	$250.00	$180.00
Overhead cost per unit	$340.26	$340.26
Total costs per unit	$590.26	$520.26
3
Calculate profit or loss per unit for each model
	Model 145	Model 212
Market price	$820.00	$480.00
Less: Costs per unit	$590.26	$520.26
Profit (loss)	$229.74	-$40.26