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		$	569,850		Number of batches	870
	Machining			379,682		Machine hours	8,290
	Setups			378,000		Number of setups	200
			$	1,327,532
Finishing	Welding		$	274,860		Welding hours	5,400
	Inspecting			303,525		Number of inspections	855
	Rework			39,900		Rework orders	190
			$	618,285
Support	Purchasing		$	161,040		Purchase orders	488
	Providing space			32,000		Number of units	8,400
	Providing utilities			127,600		Number of units	8,400
			$	320,640

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,800			5,600
Welding hours		2,200			3,200
Batches		435			435
Number of inspections		475			380
Machine hours		2,950			5,340
Setups		100			100
Rework orders		100			90
Purchase orders		325			163

  
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 $190 for Model 145 and $111 for Model 212.
3. If the market price for Model 145 is $573.06 and the market price for Model 212 is $324.92, determine the profit or loss per unit for each model.

Answer 1

TOTAL OVERHEAD COST
PARTICULARS	MODEL 145	MODEL 212	TOTAL
CHANGEOVER	284925	284925	569850
	(569850*435/870)	(569850*435/870)
MACHINING	135110	244572	379682
	(379682*2950/8290)	(379682*5340/8290)
SETUPS	189000	189000	378000
	(378000*100/200)	(378000*100/200)
WELDING	111980	162880	274860
	(274860*2200/5400)	(274860*3200/5400)
INSPECTING	168625	168625	337250
	(303525*475/855)	(303525*380/855)
REQORK	21000	18900	39900
	(39900*100/190)	(39900*90/190)
PURCHASING	107250	53790	161040
	(161040*325/488)	(161040*163/488)
PROVIDING SPACE	10666.66667	21333.33333	32000
	(32000*2800/8400)	(32000*5600/8400)
PROVIDING UTILITIES	42533.33333	85066.66667	127600
	(127600*2800/8400)	(127600*5600/8400)
TOTAL OVERHEAD COST	1071090	1229092	2300182
NO. OF UNITS	2800	5600
OVERHEAD PER UNIT	382.53	219.48
TOTAL COST OF EACH PRODUCT PER UNIT
PARTICULARS	MODEL 145	MODEL 212
DIRECT MATERIAL AND DIRECT LABOUR	190	111
OVERHEAD PER UNIT	382.53	219.48
TOTAL COST	572.53	330.48
PROFIT PER UNIT
PARTICULARS	MODEL 145	MODEL 212
MARKET PRICE	573.06	324.92
LESS : TOTAL COST	572.53	330.48
PROFIT/LOSS	0.53	-5.56