Question

3. 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		$	462,000		Number of batches	810
	Machining			301,000		Machine hours	8,190
	Setups			229,000		Number of setups	80
			$	992,000
Finishing	Welding		$	188,000		Welding hours	4,900
	Inspecting			224,000		Number of inspections	835
	Rework			64,000		Rework orders	140
			$	476,000
Support	Purchasing		$	149,000		Purchase orders	543
	Providing space			35,500		Number of units	4,960
	Providing utilities			69,000		Number of units	4,960
			$	253,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,900			3,060
Welding hours		800			4,100
Batches		405			405
Number of inspections		475			360
Machine hours		2,850			5,340
Setups		40			40
Rework orders		90			50
Purchase orders		362			181

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 $240 for Model 145 and $150 for Model 212.
3. If the market price for Model 145 is $950 and the market price for Model 212 is $320, determine the profit or loss per unit for each model.

Components department
Finishing department
Support department
Model 145	Activity Driver	Departmental OH Rate	Total Overhead Cost
Components
Finishing
Support
Model 212	Activity Driver	Departmental OH Rate	Total Overhead Cost
Components
Finishing
Support

Answer 1

1.

Computation of Departmental Overhead rates and overhead cost per unit
Department	Overhead cost	Allocation Base	Qty of allocation base	Overhead rate	Model 145	Model 212
Activity Driver	Allocated Overhead cost	Activity Driver	Allocated Overhead cost
Components	$       9,92,000.00	Machine hours	8190	$       121.12	2850	$   3,45,201.47	5340	$   6,46,798.53
Finishing	$       4,76,000.00	Welding hours	4900	$         97.14	800	$      77,714.29	4100	$   3,98,285.71
Support	$       2,53,500.00	Purchase orders	543	$       466.85	362	$   1,69,000.00	181	$      84,500.00
Total						$   5,91,915.75		$ 11,29,584.25
Nos of units						1900		3060
Overhead cost per unit						$           311.53		$           369.15

2.

Computation of Per unit Cost
Particulars	Model 145	Model 212
Direct material and labor	$               240.00	$          150.00
Overhead cost per unit	$               311.53	$          369.15
Cost per unit	$               551.53	$          519.15

3.

Computation of Profit (Loss) per unit
Particulars	Model 145	Model 212
Selling price per unit	$               950.00	$          320.00
Cost per unit	$               551.53	$          519.15
Profit (Loss) per unit	$               398.47	$         -199.15