Question

Exercise 4-7 Using the plantwide overhead rate to assess prices LO P1

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. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.)

Process	Activity	Overhead Cost				Driver	Quantity
Components	Changeover		$	454,500		Number of batches	830
	Machining			300,800		Machine hours	7,490
	Setups			226,000		Number of setups	220
			$	981,300
Finishing	Welding		$	182,400		Welding hours	4,600
	Inspecting			230,000		Number of inspections	800
	Rework			61,250		Rework orders	170
			$	473,650
Support	Purchasing		$	135,500		Purchase orders	480
	Providing space			31,450		Number of units	6,000
	Providing utilities			60,500		Number of units	6,000
			$	227,450

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,000			4,000
Welding hours		1,600			3,000
Batches		415			415
Number of inspections		490			310
Machine hours		2,290			5,200
Setups		110			110
Rework orders		70			100
Purchase orders		320			160
1. Using a plantwide overhead rate based on machine hours, 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 $190 for Model 145 and $140 for Model 212. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Model 145 Model 212 Model 145 Model 212 3. If the market price for Model 145 is $752 and the market price for Model 212 is $480, determine the profit or loss per unit for each model. Model 145 Model 212 Market price

Answer 1

1) Plantwide overhead cost rate based on MH = Total overhead/total MHs applied
Total overhead	1682400
total Machine hours	7490
Plantwide overhead rate per Mh	224.62
	Model 145	Model 212
Total MHs	2290	5200
Overhead rate per MH	224.62	224.62
Total overhead	514379.8	1168024
Units produced	2000	4000
Overhead cost per unit	257.19	292.01
2) The total cost per unit:
Overhead Assigned	Activity Driver	Plantwide OH rate	Total OH Cost	Units Produced	OH Cost per unit	DL & DM cost	total cost per unit
Model 145	Mh	224.62	514379.8	2000	257.19	190	447.19
Model 212	Mh	224.62	1168024	4000	292.01	140	432.01
3) Profit or loss per unit for each Model:
	Model 145	Model 212
Market price per unit	752	480
Total cost per unit	447.19	432.01
Profit (Loss) per unit	304.81	47.99