Question

Exercise 17-8 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 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. (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		$	451,000		Number of batches	730
	Machining			301,600		Machine hours	7,580
	Setups			227,000		Number of setups	60
			$	979,600
Finishing	Welding		$	182,700		Welding hours	4,000
	Inspecting			223,000		Number of inspections	805
	Rework			60,700		Rework orders	240
			$	466,400
Support	Purchasing		$	137,500		Purchase orders	473
	Providing space			30,200		Number of units	6,600
	Providing utilities			60,300		Number of units	6,600
			$	228,000

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,200			4,400
Welding hours		1,800			2,200
Batches		365			365
Number of inspections		470			335
Machine hours		2,330			5,250
Setups		30			30
Rework orders		140			100
Purchase orders		315			158

  
Required:

1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line. 0 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 $130 for Model 212. Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unit Model 145 $0 Model 212 $0 Model 145 Model 212 0 3. If the market price for Model 145 is $748 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

Solution:

1.)

Total overhead costs (Components overhead costs + Finishing overhead costs + Support overhead costs)	$1,674,000($979,600 + $466,400 + $228,000)
Total machine hours	7,580 hours

Predetermined overhead rate = Overhead costs / Machine Hours

= $1674000 / 7580 hours

= $220.84 per machine hour

2.)

Overhead Assigned	Activity Driver	Plantwide OH Rate	Total Overhead Cost	Units Produced	OH Cost Per Unit
Model 145	2,330hours	$220.84 per hour	$514,557	2,200	$233.89
Model 212	5,250hours	$220.84 per hour	$1,159,410	4,400	$263.50

Total manufacturing cost per unit:	Model 145	Model 212
Material and Labor	$290.00	$130.00
Overhead	$233.89	$263.50
Total manufacturing cost	$523.89	$393.50

3.)

	Model 145	Model 212
Market price	$748.00	$480.00
Manufacturing cost per unit	-$523.89	-$393.50
Profit (loss) per unit	$224.11	$86.50

If you have any query regarding this question please ask me. If you satisfy please like.