Question

HOW DO I CALCULATE?

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 Quantity 730 8,260 60 Finishing Welding Inspecting Rework Overhead Cost Driver $ 383, 250 Number of batches 392, 350 Machine hours 110,700 Number of setups $ 886,300 $ 310,590 Welding hours 333, 450 Number of inspections 81,000 Rework orders $ 725,040 $ 211,125 Purchase orders 30,200 Number of units 61,000 Number of units $ 302, 325 5,100 855 270 Support Purchasing Providing space Providing utilities 563 4,800 4,800 Additional production information concerning its two product lines follows. Model 145 1,600 2,000 Model 212 3,200 3,100 365 365 485 Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders 2,950 370 5,310 30 110 188 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 $260 for Model 145 and $111 for Model 212. 3. If the market price for Model 145 is $833.79 and the market price for Model 212 is $422.85, determine the profit or loss per unit for each model.

Answer 1

Answer

• [1]

				Model 145		Model 212
ACTIVITY	Expected Costs	Expected Activity	Activity rates	Activity Driver incurred	Overhead assigned	Activity Driver incurred	Overhead assigned
	[A]	[B]	[C = A / B]	[D]	[E = C x D]	[F]	[G = C x F]
Components:
Changeover	$                                 383,250.00	730	$                                           525.00	365	$                                            191,625.00	365	$            191,625.00
Machining	$                                 392,350.00	8,260	$                                              47.50	2,950	$                                            140,125.00	5,310	$            252,225.00
Setups	$                                110,700.00	60	$                                        1,845.00	30	$                                               55,350.00	30	$              55,350.00
Finishing:
Welding	$                                 310,590.00	5,100	$                                              60.90	2,000	$                                            121,800.00	3,100	$            188,790.00
Inspecting	$                                 333,450.00	855	$                                           390.00	485	$                                            189,150.00	370	$            144,300.00
Rework	$                                   81,000.00	270	$                                           300.00	160	$                                               48,000.00	110	$              33,000.00
Support:
Purchasing	$                                 211,125.00	563	$                                           375.00	375	$                                            140,625.00	188	$              70,500.00
Providing Space & Utilities	$                                   91,200.00	4,800	$                                              19.00	1,600	$                                               30,400.00	3,200	$              60,800.00
					0		0
				Total Overhead cost	$                                            917,075.00	Total Overhead cost	$            996,590.00
				Total Units produced	1,600	Total Units produced	3,200
				Overhead cost per unit	$                                                     573.17	Overhead cost per unit	$                    311.43

• [2]

Working		Model 145	Model 212
A	Material & Labor per unit	$                                         260.00	$                        111.00
B	Overhead cost per unit	$                                         573.17	$                        311.43
C = A + B	Total Cost per unit	$                                         833.17	$                        422.43

• [3]

Working		Model 145	Model 212
A	Price per unit	$                                         833.79	$                        422.85
B	Cost per unit	$                                         833.17	$                        422.43
C = A - B	Profit (Loss) per unit	$                                              0.62	$                             0.42