Question

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		$	461,250		Number of batches	750
	Machining			380,765		Machine hours	8,050
	Setups			148,400		Number of setups	80
			$	990,415
Finishing	Welding		$	355,160		Welding hours	5,200
	Inspecting			349,575		Number of inspections	885
	Rework			57,500		Rework orders	250
			$	762,235
Support	Purchasing		$	178,200		Purchase orders	540
	Providing space			31,100		Number of units	7,800
	Providing utilities			113,200		Number of units	7,800
			$	322,500

   
Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,600			5,200
Welding hours		1,400			3,800
Batches		375			375
Number of inspections		495			390
Machine hours		2,750			5,300
Setups		40			40
Rework orders		150			100
Purchase orders		360			180

  
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 $200 for Model 145 and $116 for Model 212.
3. If the market price for Model 145 is $557.32 and the market price for Model 212 is $337.14, determine the profit or loss per unit for each model.

Using ABC, compute the overhead cost per unit for each product line. (Round your final answers to 2 decimals places.)

Model 145 Model 212 Activity Expected Costs Expected Activity Activity Rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned Components Changeover $461,250 750 Number of batches Machining 380,765 8,050 Machine hours Setups 148,400 80 Setups Finishing Welding $355,160 5,200 Welding hours Inspecting 349,575 885 Inspections Rework 57,500 250 Rework orders Support Purchasing $178,200 540 Purchase orders Providing space and utilities 144,300 7,800 Units Total overhead cost Total units produced Overhead cost per unit

Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $200 for Model 145 and $116 for Model 212. (Round your final answers to 2 decimal places.)

	Model 145 Model 212 Materials and Labor per unit Overhead cost per unit Total cost per unit If the market price for Model 145 is $557.32 and the market price for Model 212 is $337.14, determine the profit or loss per unit for each model. (Round your final answers to 2 decimal places.) Model 145 Model 212 Price per unit Cost per unit Profit (loss) per unit

Answer 1

• Answer is provided as asked
• Requirement 1

						Model 145		Model 212
Activity	Expected Costs	Expected Activity		Activity Rate		Activity driver incurred	Overhead assigned	Activity driver incurred	Overhead assigned
Components
Changeover	461250	750	Number of batches	615	per Number of batches	375	230625	375	230625
Machining	3,80,765	8,050	Machine hours	47.3	per Machine hours	2,750	130075	5,300	250690
Setups	1,48,400	80	Setups	1855	per Setups	40	74200	40	74200
Finishing
Welding	355160	5,200	Welding hours	68.3	per Welding hours	1,400	95620	3,800	259540
Inspecting	3,49,575	885	Inspections	395	per Inspections	495	195525	390	154050
Rework	57,500	250	Rework orders	230	per Rework orders	150	34500	100	23000
Support
Purchasing	178200	540	Purchase orders	330	per Purchase orders	360	118800	180	59400
Providing space and utilities	1,44,300	7,800	Units	18.5	per Units	2,600	48100	5,200	96200
					Total overhead cost		4927445		$1147705
					Total units produced		2600		5200
					Overhead cost per unit		$356.71		$220.71

• Requirement 2

	Model 145	Model 212
Materials and Labor per unit	$200	$116
Overhead cost per unit	$356.71	$220.71
Total Cost per unit	$556.71	$336.71

• Requirement 3

	Model 145	Model 212
Price per unit	$557.32	$337.14
Cost per unit	$556.71	$336.71
Profit (loss) per unit	$0.61	$0.43