Problem

Real Cool produces two different models of air conditioners. The company produces the mech...

Real 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.

Process

Activity

Overhead Cost

Driver

Quantity

Components

Changeover

$ 500,000

Number of batches

800

 

Machining

279,000

Machine hours

6,000

 

Setups

225,000

Number of setups

120

 

 

$1,004,000

 

 

Finishing

Welding

$ 180,300

Welding hours

3,000

 

Inspecting

210,000

Number of inspections

700

 

Rework

75,000

Rework orders

300

 

 

$ 465,300

 

 

Support

Purchasing

$ 135,000

Purchase orders

450

 

Providing space

32,000

Number of units

5,000

 

Providing utilities

65,000

Number of units

5,000

 

 

$ 232,000

 

 

Additional production information concerning its two product lines follows.

 

Model 145 

Model 212

Units produced  

 1,500

3,500

Welding hours  

 800

2,200

Batches  

 400

400

Number of inspections  

400

300

Machine hours  

 1,800

4,200

Setups  

. 60

60

Rework orders  

 160

140

Purchase orders  

300

150

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 $250 for Model 145 and $180 for Model 212.


3. If the market price for Model 145 is $800 and the market price for Model 212 is $470, determine the profit or loss per unit for each model. Comment on the results.

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Solutions For Problems in Chapter 17