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 Components Activity Changeover Machining Setups Driver Number of batches Machine hours Number of setups Quantity 730 8,510 180 Finishing Welding Inspecting Rework Overhead Cost $ 470,850 395,715 335,700 $1,202,265 $ 306,820 360,750 37,100 $ 704,670 $ 158,455 30,300 71,220 $ 259,975 Welding hours Number of inspections Rework orders 4,600 925 140 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 473 5,400 5,400 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 1,800 1,200 365 515 3,150 90 70 315 Model 212 3,600 3,400 365 410 5,360 90 70 158 Required: 1. Using ABC, 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 $190 for Model 145 and $117 for Model 212. 3. If the market price for Model 145 is $739.84 and the market price for Model 212 is $444.65, determine the profit or loss per unit for each model.

Answer 1

Req 1							Model 145	Model 212
	Activity	Expected Costs	Expected Activity	Activity Rate	Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
	Components
	Changeover	470,850	730	Number of batches	$645.00	per batch	365	235,425	365	235,425
	Machining	395,715	8510	Machine hours	$46.50	per machine hour	3,150	146,475	5,360	249,240
	Setups	335,700	180	Setups	$1,865.00	per setup	90	167,850	90	167,850
	Finishing
	Welding	306,820	4,600	Welding hours	$66.70	per welding hour	1200	80,040	3,400	226,780
	Inspecting	360,750	925	Inspections	$390.00	per inspection	515	200,850	410	159,900
	Rework	37,100	140	Rework orders	$265.00	per rework order	70	18,550	70	18,550
	Support
	Purchasing	158,455	473	Purchase orders	$335.00	per purchase order	315	105,525	158	52,930
	Providing space and utilities	101,520	5400	Units	$18.80	per unit	1,800	33,840	3,600	67,680
						Total overhead cost		988555		1178355
						Total units produced		1,800		3,600
						Overhead cost per unit		549.2		327.32
Req 2		Model 145	Model 212
	Materials and Labor per unit	$190.00	$117.00
	Overhead per unit	549.2	327.32
	Total cost per unit	$739.20	$444.32
Req 3		Model 145	Model 212
	Price per unit	$739.84	$444.65
	Cost per unit	$739.20	$444.32
	Profit (loss) per unit	$0.64	$0.33