Question

Way Cool produces two different models of air conditioners. The company produces the mechanical systems in their 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		$	564,850		Number of batches	790
	Machining			384,013		Machine hours	8,330
	Setups			146,400		Number of setups	80
			$	1,095,263
Finishing	Welding		$	393,870		Welding hours	5,700
	Inspecting			290,700		Number of inspections	855
	Rework			52,000		Rework orders	200
			$	736,570
Support	Purchasing		$	175,500		Purchase orders	540
	Providing space			31,400		Number of units	8,700
	Providing utilities			132,160		Number of units	8,700
			$	339,060

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,900			5,800
Welding hours		2,600			3,100
Batches		395			395
Number of inspections		475			380
Machine hours		3,050			5,280
Setups		40			40
Rework orders		150			50
Purchase orders		360			180

  
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 $250 for Model 145 and $117 for Model 212.
3. If the market price for Model 145 is $611.90 and the market price for Model 212 is $310.93, determine the profit or loss per unit for each model.

Answer 1

[1]

				Model 145		Model 212
ACTIVITY	Expected Costs	Expected Activity	Activity rates	Activity Driver incurred	Overhead assigned	Activity Driver incurred	Overhead assigned
	[A]	[B]	[C = A / B]	[D]	[E = C x D]	[F]	[G = C x F]
Components:
Changeover	$                                 564,850.00	790	$                                           715.00	395	$                                            282,425.00	395	$            282,425.00
Machining	$                                 384,013.00	8,330	$                                              46.10	3,050	$                                            140,605.00	5,280	$            243,408.00
Setups	$                                146,400.00	80	$                                        1,830.00	40	$                                               73,200.00	40	$              73,200.00
Finishing:
Welding	$                                 393,870.00	5,700	$                                              69.10	2,600	$                                            179,660.00	3,100	$            214,210.00
Inspecting	$                                 290,700.00	855	$                                           340.00	475	$                                            161,500.00	380	$            129,200.00
Rework	$                                   52,000.00	200	$                                           260.00	150	$                                               39,000.00	50	$              13,000.00
Support:
Purchasing	$                                 175,500.00	540	$                                           325.00	360	$                                            117,000.00	180	$              58,500.00
Providing Space & Utilities	$                                 163,560.00	8,700	$                                              18.80	2,900	$                                               54,520.00	5,800	$            109,040.00
					0		0
				Total Overhead cost	$                                         1,047,910.00	Total Overhead cost	$        1,122,983.00
				Total Units produced	2,900	Total Units produced	5,800
				Overhead cost per unit	$                                                     361.35	Overhead cost per unit	$                    193.62

[2]

Working		Model 145	Model 212
A	Material & Labor per unit	$                                         250.00	$                        117.00
B	Overhead cost per unit	$                                         361.35	$                        193.62
C = A + B	Total Cost per unit	$                                         611.35	$                        310.62

[3]

Working		Model 145	Model 212
A	Price per unit	$                                         611.90	$                        310.93
B	Cost per unit	$                                         611.35	$                        310.62
C = A - B	Profit (Loss) per unit	$                                              0.55	$                             0.31