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		$	462,000		Number of batches	790
	Machining			301,000		Machine hours	8,700
	Setups			228,000		Number of setups	160
			$	991,000
Finishing	Welding		$	188,000		Welding hours	6,200
	Inspecting			221,000		Number of inspections	785
	Rework			64,500		Rework orders	240
			$	473,500
Support	Purchasing		$	141,000		Purchase orders	465
	Providing space			32,000		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		1,600			3,110
Welding hours		2,200			4,000
Batches		395			395
Number of inspections		455			330
Machine hours		3,350			5,350
Setups		80			80
Rework orders		110			130
Purchase orders		310			155

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 $300 for Model 145 and $190 for Model 212.
3. If the market price for Model 145 is $1,550 and the market price for Model 212 is $300, determine the profit or loss per unit for each model.

Answer 1

[1]

Components:
Overhead costs	$      991,000.00	113.91	per machine hour
Machine hours	8,700
Finishing:
Overhead costs	$      473,500.00	76.37	per weilding hour
Weilding hours	6,200
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	3350	$          113.91	$      381,598.50
Finishing	2200	$            76.37	$      168,014.00
Support	310	$          507.53	$      157,334.30
			$      706,946.80
		Units	1600
		Overhead cost per unit	$              441.84
Model 212	Activity Driver	Departmental OH rate	Total Overhead cost
Components	5350	$          113.91	$      609,418.50
Finishing	4000	$            76.37	$      305,480.00
Support	155	$          507.53	$        78,667.15
			$      993,565.65
		Units	3110
		Overhead cost per unit	$              319.47

[2]

Working		Model 145	Model 212
A	Material & Labor per unit	$          300.00	$                    190.00
B	Overhead cost per unit	$          441.84	$                    319.47
C = A + B	Total Cost per unit	$          741.84	$                    509.47

[3]

Working		Model 145	Model 212
A	Price per unit	$      1,550.00	$                    300.00
B	Cost per unit	$          741.84	$                    509.47
C = A - B	Profit (Loss) per unit	$          808.16	$                 (209.47)