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		$	605,150		Number of batches	910
	Machining			390,974		Machine hours	8,390
	Setups			302,400		Number of setups	160
			$	1,298,524
Finishing	Welding		$	275,380		Welding hours	4,900
	Inspecting			306,000		Number of inspections	900
	Rework			61,950		Rework orders	210
			$	643,330
Support	Purchasing		$	151,280		Purchase orders	488
	Providing space			30,400		Number of units	5,400
	Providing utilities			71,120		Number of units	5,400
			$	252,800

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,800			3,600
Welding hours		1,000			3,900
Batches		455			455
Number of inspections		500			400
Machine hours		3,050			5,340
Setups		80			80
Rework orders		130			80
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 $220 for Model 145 and $113 for Model 212.
3. If the market price for Model 145 is $773.40 and the market price for Model 212 is $446.69, determine the profit or loss per unit for each model.

Answer 1