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 $ 550,550 Number of batches 910 Machining 380,052 Machine hours 8,280 Setups 293,600 Number of setups 160 $ 1,224,202 Finishing Welding $ 276,300 Welding hours 4,500 Inspecting 258,300 Number of inspections 820 Rework 55,200 Rework orders 240 $ 589,800 Support Purchasing $ 153,720 Purchase orders 488 Providing space 31,100 Number of units 8,400 Providing utilities 125,980 Number of units 8,400 $ 310,800 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 2,800 5,600 Welding hours 1,400 3,100 Batches 455 455 Number of inspections 490 330 Machine hours 2,950 5,330 Setups 80 80 Rework orders 170 70 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 $200 for Model 145 and $115 for Model 212. 3. If the market price for Model 145 is $554.80 and the market price for Model 212 is $317.68, determine the profit or loss per unit for each model.

Answer 1

							Model 145		model 212
Activity		Expected	Expected activity		Activity rate		Activity	oh	Activity	oh
		costs					driver	assigned	driver	assigned
Components
Changeover		550,550	910	no batches	605	no batches	455	275275	455	275275
Machining		380,052	8,280	MH's	45.9	MH's	2,950	135405	5,330	244647
Setups		293,600	160	no setups	1835	no setups	80	146800	80	146800
Finishing
Welding		276,300	4,500	welding hrs	61.4	welding hrs	1,400	85960	3,100	190340
Inspecting		258,300	820	no inspections	315	no inspections	490	154350	330	103950
Rework		55,200	240	Re orders	230	Re orders	170	39100	70	16100
Support
Purchasing		153,720	488	pur orders	315	pur orders	325	102375	163	51345
providing space&yutilit		157,080	8,400	no units	18.7	no units	2,800	52360	5,600	104720
		2,124,802				total oh		991625		1133177
						units produced		2,800		5,600
						oh cost per unit		354.15		202.35
				model 145	model 212
2)
	Materials and labor per unit			200.00	115.00
	overhead cost per unit			354.15	202.35
	total cost per unit			554.15	317.35
3)				model 145	model 212
	price per unit			554.8	317.68
	cost per unit			554.15	317.35
	profit(loss)per unit			0.65	0.33