Question

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. Process Activity Overhead Cost Driver Quantity Components Changeover $ 627,450 Number of batches 890 Machining 379,155 Machine hours 8,050 Setups 108,000 Number of setups 60 $ 1,114,605 Finishing Welding $ 220,580 Welding hours 4,100 Inspecting 254,200 Number of inspections 820 Rework 47,200 Rework orders 160 $ 521,980 Support Purchasing $ 158,600 Purchase orders 488 Providing space 30,900 Number of units 8,400 Providing utilities 126,180 Number of units 8,400 $ 315,680 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced 2,800 5,600 Welding hours 800 3,300 Batches 445 445 Number of inspections 510 310 Machine hours 2,750 5,300 Setups 30 30 Rework orders 90 70 Purchase orders 325 163 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 $112 for Model 212. 3. If the market price for Model 145 is $515.95 and the market price for Model 212 is $303.34, determine the profit or loss per unit for each model.

Answer 1

Way Cool

1. Overhead Cost per unit for each product line:

Model 145 Model 212

Overhead cost per unit $434.97 $457.59

2. Total cost per unit for each product line:

Model 145 Model 212

Total cost per unit $634.97 $569.59

3. The profit or loss per unit for each model:

Model 145 Model 212

Market price 515.95 303.34

Loss per unit $119.02 $266.25

Step-by-step explanation:

a) Data and Calculations:

Process Activity Overheads Driver Quantity Components O/H rates

Changeover $ 627,450 Number of batches 890 $705

Machining 379,155 Machine hours 8,050 $47.10

Setups 108,000 Number of setups 60 $1,800

Total $ 1,114,605

Finishing

Welding $ 220,580 Welding hours 4,100 $538

Inspecting 254,200 Number of inspections 820 $310

Rework 47,200 Rework orders 160 $295

Total $ 521,980

Support Purchasing $ 158,600 Purchase orders 488 $325

Providing space 30,900 Number of units 8,400 $3.68

Providing utilities 126,180 Number of units 8,400 $15.02

Total $ 315,680

Additional production information concerning its two product lines follows.

Model 145 Model 212

Units produced 2,800 5,600

Welding hours 800 3,300

Batches 445 445

Number of inspections 510 310

Machine hours 2,750 5,300

Setups 30 30

Rework orders 90 70

Purchase orders 325 163

Model 145 Model 212

Units produced 2,800 5,600

Welding hours $430,400 (800*$538) $1,775,400 (3,300 * $538)

Batches 313,725 (445*$705) 313,725 (445*$705)

Number of inspections 158,100 (510*$310) 96,100 (310*$310)

Machine hours 129,525 (2,750*$47.10) 249,630 (5,300*$47.10)

Setups 54,000 (30*$1,800) 54,000 (30*$1,800)

Rework orders 26,550 (90*$295) 20,650 (70*$295)

Purchase orders 105,625 (325*$325) 52,975 (163*$325)

Total overhead costs $1,217,925 $2,562,480

Units produced 2,800 5,600

Overhead cost per unit $434.97 $457.59

Direct labor and materials 200.00 112.00

Total cost per unit $634.97 $569.59

Market price 515.95 303.34

Loss per unit $119.02 $266.25