Question

Way Cool 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 the production support process follow.

Process	Activity	Overhead Cost	Driver	Quantity
Components	Changeover	$470,000	Number of batches	750
	Machining	$309,000	Machine hours	8,220
	Setups	$226,000	Number of setups	140
		$1,005,000
Finishing	Welding	$192,000	Welding hours	5,700
	Inspecting	$224,000	Number of inspections	920
	Rework	$63,000	Rework orders	220
		$479,500
Support	Purchasing	$137,000	Purchase orders	465
	Providing space	$36,000	Number of units	4,710
	Providing utilities	$63,000	Number of units	4,710
		$236,000

Additional production information concerning its two product lines follows.

	Model 145	Model 212
Units produced	1,6000	3,110
Welding hours	2,200	3,500
Batches	375	375
Number of inspections	510	410
Machine hours	2,950	5,270
Setups	70	70
Rework orders	110	110
Purchase orders	310	115

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. Using welding hours to assign overhead costs to the finishing department based on the number of purchase orders.

2. Determine the total cost per unit for each product line if the direct labor and direct materials cost per unit are $210 for Model 145 and $130 for Model 212.

3. If the market price for Model 145 is $1,925 and the market price for Model 212 is $260, determine the profit or loss per unit for each model.

Components department
Overhead Costs
Machine hours
Finishing department
Overhead costs
Welding hours
Support department
Overhead costs
Number of purchase orders
Model 145	Activity Driver	Departmental OH Rate	Total Overhead Cost
Components
Finishing
Support
Model 212	Activity Driver	Departmental OH Rate	Total Overhead Costs
Components
Finishing
Support

Required 2

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

Required 3

	Model 145	Model 212
Market price per unit
Cost per unit
Profit (loss) per unit

Answer 1

• [1]

Components:
Overhead costs	$           1,005,000.00	122.26	per machine hour
Machine hours	8,220
Finishing:
Overhead costs	$              479,500.00	84.12	per weilding hour
Weilding hours	5,700
Support:
Overhead costs	$              236,000.00	507.53	per purchase order
Purchase orders	465
Model 145	Activity Driver	Departmental OH rate	Total Overhead cost
Components	2950	$              122.26	$          360,667.00
Finishing	2200	$                 84.12	$          185,064.00
Support	310	$              507.53	$          157,334.30
			$          703,065.30
		Units	1600
		Overhead cost per unit	$                  439.42
Model 212	Activity Driver	Departmental OH rate	Total Overhead cost
Components	5270	$              122.26	$          644,310.20
Finishing	3500	$                 84.12	$          294,420.00
Support	115	$              507.53	$            58,365.95
			$          997,096.15
		Units	3110
		Overhead cost per unit	$                  320.61

• [2]

Working		Model 145	Model 212
A	Material & Labor per unit	$              210.00	$                  130.00
B	Overhead cost per unit	$              439.42	$                  320.61
C = A + B	Total Cost per unit	$              649.42	$                  450.61

• [3]

Working		Model 145	Model 212
A	Price per unit	$           1,925.00	$                  260.00
B	Cost per unit	$              649.42	$                  450.61
C = A - B	Profit (Loss) per unit	$           1,275.58	$                (190.61)