Question

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 910 7,620 Finishing Welding Inspecting Rework Overhead Cost $ 458,000 301,400 227,500 $ 986,900 $ 180,700 225,000 61,950 $ 467,650 $ 137,000 32,150 60,550 $ 229,700 Welding hours Number of inspections Rework orders 4.300 845 200 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 548 6,300 6,300 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 2,100 1,000 455 505 2,320 Model 212 4,200 3,300 455 340 5,300 40 40 140 60 365 183 Required:

Answer 1

1) Plant wide Overhead rate = Total Overheads/Total Machine Hours

= $1,684,250/7,620 hrs = $221.03

Calculation of Overhead Cost per Unit for each Product Line (Amounts in $)

Overhead Assigned	Activity Driver (A)	Plantwide OH rate (B)	Total Overhead Cost (C = A*B)	Units Produced (D)	OH cost per unit (C/D)
Model 145	2,320 hrs	221.03	512,789.60	2,100	244.19
Model 212	5,300 hrs	221.03	1,171,459	4,200	278.92

2) Calculation of total cost per unit for each model (Amounts in $)

	Model 145	Model 212
Direct labor and materials cost per unit	210	190
Overhead cost per unit	244.19	278.92
Total cost per unit	454.19	468.92

3) Calculation of profit or loss per unit (Amounts in $

	Model 145	Model 212
Market Price per unit	744	440
Total cost per unit	(454.19)	(468.92)
Profit (or Loss) per unit	289.81	(28.92)