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 Aetivity Components Changeover Overhead Cost Driver Quantity Machining Setups $532,350 396,950 338,400 Number of batches Machine hours Number of setups 910 8,500 180 $1,267,700 Finishing Welding Inspecting Rework $254,270 253,575 57 000 Welding hours Number of inspections Rework orders 4,700 805 90 $564,845 Support Purchasing Providing space Providing utilities $ 181,OBO 31,400 135,640 Purchase orders Number of units Number of units 503 8,700 8,700 $ 348,120 Additional production information concerning its two product lines follows. Model 145 Model 212 Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders 2,900 1, 200 455 485 3,150 90 120 335 5,800 3, 500 455 320 5,350 90 70 168 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 $180 for Model 145 and $111 for Model 212 3. If the market price for Model 145 is $529.78 and the market price for Model 212 is $312.76, determine the profit or loss per unit for each model.

Answer 1

							Model 145		model 212
Activity		Expected	Expected activity		Activity rate		Activity	oh	Activity	oh
		costs					driver	assigned	driver	assigned
Components
Changeover		532,350	910	no batches	585	no batches	455	266175	455	266175
Machining		396,950	8,500	MH's	46.7	MH's	3,150	147105	5,350	249845
Setups		338,400	180	no setups	1880	no setups	90	169200	90	169200
Finishing
Welding		254,270	4,700	welding hrs	54.1	welding hrs	1,200	64920	3,500	189350
Inspecting		253,575	805	no inspections	315	no inspections	485	152775	320	100800
Rework		57,000	190	Re orders	300	Re orders	120	36000	70	21000
Support
Purchasing		181,080	503	pur orders	360	pur orders	335	120600	168	60480
providing space&yutilit		167,040	8,700	no units	19.2	no units	2,900	55680	5,800	111360
		2,180,665				total oh		1012455		1168210
						units produced		2,900		5,800
						oh cost per unit		349.12		201.42
				model 145	model 212
2)
	Materials and labor per unit			180.00	111.00
	overhead cost per unit			349.12	201.42
	total cost per unit			529.12	312.42
3)				model 145	model 212
	price per unit			529.78	312.76
	cost per unit			529.12	312.42
	profit(loss)per unit			0.66	0.34