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		$	505,750		Number of batches	850
	Machining			383,423		Machine hours	8,390
	Setups			75,400		Number of setups	40
			$	964,573
Finishing	Welding		$	325,360		Welding hours	4,900
	Inspecting			301,875		Number of inspections	875
	Rework			45,600		Rework orders	160
			$	672,835
Support	Purchasing		$	170,400		Purchase orders	480
	Providing space			31,700		Number of units	6,600
	Providing utilities			90,400		Number of units	6,600
			$	292,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,200			4,400
Welding hours		1,600			3,300
Batches		425			425
Number of inspections		525			350
Machine hours		3,050			5,340
Setups		20			20
Rework orders		90			70
Purchase orders		320			160

  
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 $119 for Model 212.
3. If the market price for Model 145 is $658.41 and the market price for Model 212 is $354.03, determine the profit or loss per unit for each model.

Answer 1

Answer 1:

Overhead cost per unit of Model 145 = $407.85

Overhead cost per unit of Model 212 = $234.69

Working:

Let us calculate activity rates:

Now using ABC we calculate total and per unit overhead cost model wise:

Answer 2:

Total cost per unit for each product line are calculated and given below:

Answer 3:

Profit or loss per unit for each model is calculated and given below: