Question

Exercise 17-8 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 $ 452,000 Number of batches 790 Machining 313,000 Machine hours 7,920 Setups 226,000 Number of setups 100 $ 991,000 Finishing Welding $ 184,000 Welding hours 4,400 Inspecting 230,000 Number of inspections 900 Rework 64,500 Rework orders 210 $ 478,500 Support Purchasing $ 143,000 Purchase orders 477 Providing space 32,500 Number of units 5,170 Providing utilities 67,000 Number of units 5,170 $ 242,500 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 2,100 3,070 Welding hours 1,000 3,400 Batches 395 395 Number of inspections 520 380 Machine hours 2,650 5,270 Setups 50 50 Rework orders 150 60 Purchase orders 318 159 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 $230 for Model 145 and $120 for Model 212. 3. If the market price for Model 145 is $1,175 and the market price for Model 212 is $290, determine the profit or loss per unit for each model.

Answer 1