Question

A) Exercise 4-8 Using departmental overhead rates to assess prices LO P2

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		$	458,000		Number of batches	870
	Machining			313,000		Machine hours	8,320
	Setups			232,000		Number of setups	200
			$	1,003,000
Finishing	Welding		$	188,000		Welding hours	5,900
	Inspecting			233,000		Number of inspections	875
	Rework			61,500		Rework orders	160
			$	482,500
Support	Purchasing		$	135,000		Purchase orders	525
	Providing space			33,000		Number of units	4,820
	Providing utilities			67,000		Number of units	4,820
			$	235,000

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,800			3,020
Welding hours		2,400			3,500
Batches		435			435
Number of inspections		505			370
Machine hours		3,050			5,270
Setups		100			100
Rework orders		110			50
Purchase orders		350			175

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 $270 for Model 145 and $210 for Model 212.
3. If the market price for Model 145 is $1,475 and the market price for Model 212 is $320, determine the profit or loss per unit for each model.

B)

Exercise 4-6 Assigning overhead costs using the plantwide rate and departmental rate methods LO P1, P2

Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 33,000 desk lamps produced annually follows.

Direct materials	$	270,000
Direct labor
Fabricating department (6,000 DLH × $28 per DLH)	$	168,000
Assembly department (16,000 DLH × $29 per DLH)	$	464,000
Machine hours
Fabricating department		14,700	MH
Assembly department		20,300	MH

  
Expected overhead cost and related data for the two production departments follow.

	Fabricating			Assembly
Direct labor hours		190,000	DLH		325,000	DLH
Machine hours		169,000	MH		121,000	MH
Overhead cost	$	330,000		$	405,000

  
Required
1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.
2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate.
3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department.
4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Answer 1

Answer A)

Finishing
Welding	1,88,000	5,900	Welding hours	31.86	per welding hour	2,400	90,864	3,500	1,32,510
Inspection	2,33,000	875	Number of inspections	266.29	per inspection	505	1,34,477	370	98,527
Rework	61,500	160	Rework orders	384.38	per rework order	110	42,282	50	19,219
Support
Purchasing	1,35,000	525	Purchase orders	257.14	per purchase order	350	90,000	175	45,000
Providing space & utilities	67,000	4,820	Number of units	13.9	per unit	1,800	25,020	3,020	41,978
					Total Overhead Cost		8,42,384		8,80,491
					Total Units Produced		1800		3020
					Overhead Cost per unit		467.99		291.55

2.Total Cost per unit:

	Model 145	Model 212
Direct Labour & Labour Cost	270.00	210.00
Overhead Cost	467.99	291.55
	737.99	501.55

3. Profit/(loss) per unit:

	Model 145	Model 212
Selling Price per unit	1475.00	480.00
Direct Labour & Labour Cost	270.00	210.00
Overhead Cost	467.99	291.55
Profit/(loss) per unit	737.01	-181.55

Answer B)

	Fabricating Dept	Assembly Dept	Total
Overhead Cost	3,30,000	4,05,000	7,35,000
Direct Labour Hours	1,90,000	3,25,000	5,15,000

Plantwide Overhead Rate = Total Overhead Cost / Total Direct Labour Hours = 735,000 / 515,000 = 1.43 (Rounded off)

Answer 2:Calculating Manufacturing Cost per Unit for aluminium desk lamp

Direct Material	2,70,000
Direct Labour
- Fabricating Dept	1,68,000
- Assembly Dept	4,64,000
Mfg. Overhead Cost
- Fabricating Dept	8,580
- Assembly Dept	22,880
Total Mfg. Cost	9,33,460
Units Produced	33,000
Mfg. cost per unit	28.29 (Rounded off)

Answer 3:

Overhead Cost of Fabricating Dept. = 330,000

Total Machine Hours = 169,000

Overhead Rate (Fabricating Dept.)= 330,000 / 169,000 = 1.95 (Rounded off) per MH

Overhead Cost of Assembly Dept. = 405,000

Total Direct Labour Hours = 325,000

Overhead Rate (Assembly Dept.)= 405,000 / 325,000 = 1.25 (Rounded off) per DLH

Answer 4:

Direct Material	2,70,000
Direct Labour
- Fabricating Dept	1,68,000
- Assembly Dept	4,64,000
Mfg. Overhead Cost
- Fabricating Dept	28,665
- Assembly Dept	20,000
Total Mfg. Cost	950,668
Units Produced	33,000
Mfg. cost per unit	28.81