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 $ 462,000 Number of batches 910 Machining 305,000 Machine hours 8,520 Setups 229,000 Number of setups 180 $ 996,000 Finishing Welding $ 182,000 Welding hours 5,000 Inspecting 235,000 Number of inspections 900 Rework 63,500 Rework orders 240 $ 480,500 Support Purchasing $ 139,000 Purchase orders 561 Providing space 36,000 Number of units 5,040 Providing utilities 66,000 Number of units 5,040 $ 241,000 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 2,000 3,040 Welding hours 1,400 3,600 Batches 455 455 Number of inspections 510 390 Machine hours 3,250 5,270 Setups 90 90 Rework orders 130 110 Purchase orders 374 187

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 $290 for Model 145 and $120 for Model 212.
3. If the market price for Model 145 is $1,850 and the market price for Model 212 is $280, determine the profit or loss per unit for each model.

Answer 1