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.) Activity Components Changeover Machining Setups Process Overhead Cost Driver Quantity 456,500 301,400 Number of batches 770 Machine hours 7,640 Number of setups 220 227,000 984,900 $ 180,200 229,000 61,550 Finishing Welding hours Number of inspections Rework orders Welding Inspecting Rework 4,600 730 160 $ 470,750 $ 136,000 Purchasing Providing space Providing utilities Purchase orders 488 Support Number of units 5,400 5,400 30,750 60,390 Number of units $ 227,140 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced Welding hours 1,800 3,600 3,200 1,400 Batches 385 385 Number of inspections 265 465 Machine hours 2,290 5,350 110 110 Setups Rework orders 120 40 Purchase orders 163 325 Required: 1. Using a plantwide overhead rate based on machine hours, 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 $300 for Model 145 and $170 for Model 212. Activity Driver Plantwide OH Units Produced OH Cost per unit Overhead Assigned Total Overhead Cost rate OH Cost per Activity Driver Plantwide OH Units Produced Overhead Assigned Total Overhead Cost unit rate Model 145 Model 212 Model 145 Model 212 3. If the market price for Model 145 is $743 and the market price for Model 212 is $460, determine the profit or loss per unit for each model. Model 145 Model 212 Market price

Answer 1

1. Computation of Plantwide Manufacturing overhead rate :-
	Estimated Total manufacturing Overheads
	Components			984900
	Finishing			470750
	Support			227140
	Estimated Total manufacturing Overheads			$         1,682,790
	Estimated total Machine hours			7,640
	Plantwide Manufacturing overhead rate		=	Estimated Total manufacturing Overheads
				Estimated total Machine hours
			=	$1,682,790
				7640
			=	$220.26	per machine hour
2. Total Cost per unit:-
Computation of Overhead Cost Per unit:-
	Product	Activity Driver		Plantwide OH Rate		Total Overhead Cost	Units Produced	OH Cost per unit
	a	b		c		d = b×c	e	f = d/e
	Model 145	2290	Machine hours	$220.26	per machine hour	$504,396	1,800	$280.22
	Model 212	5350	Machine hours	$220.26	per machine hour	$1,178,394	3,600	$327.33
Computation of Total Cost per unit :-
			Product
			Model 145	Model 212
			Per Unit	Per Unit
	Direct Material Cost & Direct labor Cost		$           300.00	$               170.00
	Overhead Cost		$           280.22	$               327.33
	Total Cost		$           580.22	$               497.33
3. Computation of Profit Margin :-
				Product
				Model 145	Model 212
	Market Price per unit			$               743.00	$                     460.00
	Less:    Total Cost per unit			$               580.22	$                     497.33
	Profit Margin Per Unit			$               162.78	$                      (37.33)

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