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. (Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.) Process Activity Overhead Cost Driver QuantityComponents Changeover $ 459,500 Number of batches 810 Machining 301,600 Machine hours 7,680 Setups 227,500 Number of setups 80 $ 988,600 Finishing Welding $ 180,500 Welding hours 4,900 Inspecting 222,000 Number of inspections 815 Rework 60,700 Rework orders 230 $ 463,200 Support Purchasing $ 135,500 Purchase orders 525 Providing space 31,550 Number of units 4,800 Providing utilities 60,110 Number of units 4,800 $ 227,160 Additional production information concerning its two product lines follows. Model 145 Model 212Units produced 1,600 3,200 Welding hours 2,000 2,900 Batches 405 405 Number of inspections 485 330 Machine hours 2,280 5,400 Setups 40 40 Rework orders 130 100 Purchase orders 350 175 Required:1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.2. Determine the total cost per unit for each products line if the direct labor and direct materials costs per unit are $200 for Model 145 and $130 for Model 212.Overhead Assigned Activity Driver Plantwide OH rate Total Overhead Cost Units Produced OH Cost per unitModel 145 Model 212 Model 145 Model 212 3. Assume if the market price for Model 145 is $732 and the market price for Model 212 is $490, determine the profit or loss per unit for each model. Model 145 Model 212 Market price

Answer 1

Way Cool:

1. Overhead cost per unit for each product line:

Model 145 Model 212

Machine hours 2,280 5,400

Numbers of units 1,600 3,200

Total costs $498,441.25 $1,180,518.75

Overhead cost

per unit $311.53 $368.91

2. Total cost per unit if the direct labor and direct materials costs per unit are $200 for Model 145 and $130 for Model 212

Model 145 Model 212

Overhead cost

per unit $311.53 $368.91

Direct material &

labor cost per unit $200.00 $130.00

Total cost per unit $511.53 $498.91

3. Determination of profit or loss per unit if market price for Model 145 is $732 and $490 for Model 212:

Model 145 Model 212

Sales price $732.00 $490.00

Cost of sales $511.53 $498.91

Profit (Loss) per unit $220.47 ($8.91)

Step-by-step explanation:

a) Data and Calculations:

Process Activity Overhead Driver Quantity Plant Wide Rate

Components C/over 459,500 No. of batches 810 $567.28

Machining 301,600 M. hours 7,680 $39.27

Setups 227,500 No. of setups 80 $2,843.75

Sub-Total $988,600

Finishing welding 180,500 Welding hours 4,900 $36.84

Inspecting 222,000 Number of

inspections 815 $272.39

Rework 60,700 Rework orders 230 $263.91

Sub-Total $463,200

Support Purchasing 135,500 Purch. orders 525 $258.10

Providing space 31,550 No. of units 4,800 $6.57

Providing utilities 60,110 No. of units 4,800 $12.52

Sub-Total $ 227,160

Total overhead $1,678,960

Additional production information concerning its two product lines follows.

Model 145 Model 212 Total

Units produced 1,600 3,200 4,800

Welding hours 2,000 2,900 4,900

Batches 405 405 810

Number of inspections 485 330 815

Machine hours 2,280 5,400 7,680

Setups 40 40 80

Rework orders 130 100 230

Purchase orders 350 175 525

b) Calculation of Plantwide overhead rate based on machine hours:

Total overhead costs/machine hours = $1,678,960/7,680

= $218.6146 per machine hour

c) Activity Based Costing system is a system that accumulates and allocates production or service costs based on the activities undertaken for the production or service. The activities are regarded as the cost drivers and therefore better bases for accumulating and allocating costs.