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	Activity	Overhead Cost				Driver	Quantity
Components	Changeover		$	476,000		Number of batches	770
	Machining			312,000		Machine hours	8,190
	Setups			229,000		Number of setups	20
			$	1,017,000
Finishing	Welding		$	186,000		Welding hours	4,800
	Inspecting			224,000		Number of inspections	890
	Rework			62,000		Rework orders	200
			$	472,000
Support	Purchasing		$	147,000		Purchase orders	507
	Providing space			38,500		Number of units	4,570
	Providing utilities			68,000		Number of units	4,570
			$	253,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,500			3,070
Welding hours		1,800			3,000
Batches		385			385
Number of inspections		500			390
Machine hours		2,850			5,340
Setups		10			10
Rework orders		160			40
Purchase orders		338			169

Required:
1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.
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 $140 for Model 212.
3. If the market price for Model 145 is $1,025 and the market price for Model 212 is $290, determine the profit or loss per unit for each model.


Required 1 Required 2 Realised 3 If the market price for Model 145 is $1,025 and the market price for Mod for each model. (Loss amounts should be indicated with a minus sign. Rol to 2 decimal places.) Model 145 Model 212 Market price per unit Cost per unit Profit (loss) per unit Required: < Required 2

Answer 1

Required:1 Model 145 Model 212 Activity Drive incurred Overhead assigned Activity Drive incurred Overhead assigned Expected Costs Expected Activity Activity Rate 476000 312000 229000 770 Number of batches 8190 Machine hours 20 Number of setups 618.18 Per batch 38.10 Per Machine hour 11450.00 Per Setup 2850 10 238000 108571 1145001 385 53401 10 238000 203429 114500 Activity Components: Change over Machining Setups Finishing: Welding Inspecting Rework Support: Purchasing Provide utilities 116250 186000 224000 62000 4800 Welding hours 890 Number of inspections 200 Rework orders 38.75 Per Welding hour 251.69 Per Inspection 310.00 Per rework order 1800 500 1600 69750 125843 49600 3000 390 40 98157 12400 169 147000 106500 507 Purchase orders 4570 Number of units 338 1500 3070 289.94 Per Purchase order 23.30 Per unit Total over head cost Total units produced Over head cost per unit 98000 34956 839220 1500 559.48 49000 7 1544 903280 3070 294.23

Required :2 Materials and labor per unit Over head per unit Total cost Model 145 Model 212 200.00 140.00 559.48 294.23 759.48 434.23 Required :3 Price per unit Cost per unit Profit (loss ) Per Unit Model 145 Model 212 1025.00 290.00 759.48 434.231 265.52 -144.23