Question

Way Cool produces two different models of air conditioners. The company produces 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 production support processes follow.

Process	Activity	Overhead Cost	Driver	Quantity
Components	Changeover	$586,950	Number of batches	910
	Machining	$355,355	Machine hours	7,810
	Setups	$72,400	Number of setups	40
		$1,014,705
Finishing	Welding	$296,550	Welding hours	4,500
	Inspecting	$289,000	Number of inspections	850
	Rework	$26,400	Rework orders	120
		$611,950
Support	Purchasing	$213,940	Purchase orders	563
	Providing Space	$31,700	Number of units	8,700
	Providing Utilities	$130,990	Number of units	8,700
		$376,630

Additional production information concerning its product lines follows.

	Model 145	Model 212
Units produced	2,900	5,800
Welding hours	1,200	3,300
Batches	455	455
Number of inspections	460	390
Machine hours	2,550	5,260
Setups	20	20
Rework orders	70	50
Purchase orders	375	188

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 cost per unit are $250 for Model 145 and $111 for Model 212.

3. If the market price for Model 145 is $558.71 and the market price for Model 212 is $302.69, determine the profit or loss per unit for each model.

Required 1

						Model 145		Model 212
Activity	Expected Costs	Expected Activity		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	$586,950	910	Number of batches
Machining	$355,355	7,810	Machine hours
Setups	$72,400	40	Setups
Finishing
Welding	$296,550	4,500	Welding hours
Inspecting	$289,000	850	Inspections
Rework	$26,400	120	Rework orders
Support
Purchasing	$213,940	563	Purchase orders
Providing space and utilities	$162,690	8,700	Units
					Total overhead
					Total units produced
					Overhead cost per unit

Required 2

	Model 145	Model 212
Materials and Labor per unit
Overhead cost per unit
Total cost per unit

Required 3

	Model 145	Model 212
Price per unit
Cost per unit
Profit (loss) per unit

Explain step by step, please and thankyou.

Answer 1

1. Calculation of overhead cost per unit for each product line:

					Model 145	Model 212
Activity	Expected costs	Expected Activity	Activity rate	Activity driver	Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components:
Changeover	$586,950	910	$645 ($586,950 / 910)	Number of batches	455	$293,475 (455 * $645)	455	$293,475 (455 * $645)
Machining	$355,355	7,810	$45.5 ($355,355 / 7,810)	Number of machine hours	2,550	$116,025 (2,550 * $45.50)	5,260	$239,330 (5,260 * $45.50)
Setups	$72,400	40	$1,810 ($72,400 / 40)	Number of setups	20	$36,200 (20 * $1,810)	20	$36,200 (20 * $1,810)
Finishing:
Welding	$296,550	4,500	$65.9 ($296,550 / 4,500)	Number of welding hours	1,200	$79,080 (1,200 * $65.90)	3,300	$217,470 (3,300 * $65.90)
Inspection	$289,000	850	$340 ($289,000 / 850)	Number of inspections	460	$156,400 (460 * $340)	390	$132,600 (390 * $340)
Rework	$26,400	120	$220 ($26,400 / 120)	Number of rework orders	70	$15,400 (70 * $220)	50	$11,000 (50 * $220)
Support:
Purchasing	$213,940	563	$380 ($213,940 / 563)	Number of Purchase orders	375	$142,500 (375 * $380)	188	$71,440 (188 * $380)
Providing space and utilities	$162,690	8700	$18.7 ($162,690 / 8,700)	Number of Units produced	2,900	$54,230 (2,900 * $18.70)	5800	$10,8460 (5,800 * $18.70)
Total Overhead Cost						$893,310		$1,109,975

	Model 145	Model 212
a. Total Overheads cost	$893,310	$1,109,975
b. Total units produced	2,900 units	5,800 units
c. Overhead cost per unit (a / b)	$308.04	$191.38

2. Calculation of total cost per unit for each product line:

	Model 145	Model 212
a. Material and labor per unit	$250	$111
b. Overhead cost per unit	$308.04	$191.38
c. Total cost per unit (a + b)	$558.04	$302.38

3. Calculation of profit or loss per unit for each product line:

	Model 145	Model 212
a. Price per unit	$558.71	$302.69
b. Total cost per unit	$558.04	$302.38
c. Profit (loss) per unit (a -b)	$0.67	$0.31