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 $ 476,000 Number of batches 730 Machining 310,000 Machine hours 7,990 Setups 225,000 Number of setups 220 $ 1,011,000 Finishing Welding $ 192,000 Welding hours 5,800 Inspecting 234,000 Number of inspections 790 Rework 64,500 Rework orders 240 $ 490,500 Support Purchasing $ 135,000 Purchase orders 525 Providing space 34,000 Number of units 5,210 Providing utilities 61,000 Number of units 5,210 $ 230,000 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 2,100 3,110 Welding hours 2,400 3,400 Batches 365 365 Number of inspections 480 310 Machine hours 2,650 5,340 Setups 110 110 Rework orders 170 70 Purchase orders 350 175 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 $280 for Model 145 and $190 for Model 212. 3. If the market price for Model 145 is $1,625 and the market price for Model 212 is $320, determine the profit or loss per unit for each model.

Answer 1

1.

Components Department
Overhead Cost	$1,011,000	$126.53	Per Machine Hour
Machine Hour	7,990
Finishing Department
Overhead Cost	$490,500	$84.57	Per Welding Hour
Welding Hours	$5,800
Support Department
Overhead Costs	$230,000	$438.10	Per Welding Hour.
Number of Purchase Order	$525

2.

Model 145	Activity Driver	Department Overhead Rate	Total Overhead Cost
Components	2,650	$126.53	$335,305
Finishing	2400	$84.57	$202,968
Support	350	$438.10	$153,335
Total Overheads Cost			$691,608
Units Produced			2100
Overhead Cost Per Unit			$329.34

Model 212	Activity Driver	Department Overhead Rate	Total Overhead Cost
Components	5340	$126.53	$675,670
Finishing	3400	$84.57	$287,538
Support	175	$438.10	$76,668
Total Overhead Cost			$1,039,876
Units Produced			3,110
Overhead Cost Per Unit			$334.37

2.

	Model 145	Model 212
Materials and Labor Per Unit	280	190
Overhead Cost Per Unit	$329.34	$334.37
Total Cost Per Unit	$609.34	$524.37

3.

	Model 145	Model 212
Market Price Per Unit	$1,625	$320
Cost Per Unit	$609.34	$524.37
Profit (Loss)Per Unit	$1,015.66	$(204.37)