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 Components Changeover Machining Setupa Driver Number of batches Machine hours Number of setup Quantity 800 6,000 120 Finishing Welding Inspecting Rework Overhead cont $ 500,000 279.000 225,000 $1,004,000 $ 180,300 210,000 75,000 $ 465,300 $ 135,000 32,000 65,000 $ 232,000 Welding hours Number of inspections Rework orders 3,000 700 300 Support Purchasing Providing space Providing utilities Purchase orders Number of units Number of units 450 5,000 5,000 Additional production information concerning its two product lines follows Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders Model 145 1,500 800 400 400 1,800 Model 212 3,500 2,200 400 300 4,200 60 140 150 160 300 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 $250 for Model 145 and $180 for Model 212 3. If the market price for Model 145 is $820 and the market price for Model 212 is $480, determine the profit or loss per unit for each model

Answer 1

Answers

• Requirements
• [1]

Components:
Overhead costs	$           1,004,000.00	167.33	per machine hour
Machine hours	6,000
Finishing:
Overhead costs	$              465,300.00	155.10	per weilding hour
Weilding hours	3,000
Support:
Overhead costs	$              232,000.00	515.56	per purchase order
Purchase orders	450
Model 145	Activity Driver	Departmental OH rate	Total Overhead cost
Components	1800	$              167.33	$          301,194.00
Finishing	800	$              155.10	$          124,080.00
Support	300	$              515.56	$          154,668.00
			$          579,942.00
		Units	1500
		Overhead cost per unit	$                  386.63
Model 212	Activity Driver	Departmental OH rate	Total Overhead cost
Components	4200	$              167.33	$          702,786.00
Finishing	2200	$              155.10	$          341,220.00
Support	150	$              515.56	$            77,334.00
			$      1,121,340.00
		Units	3500
		Overhead cost per unit	$                  320.38

• [2]

Working		Model 145	Model 212
A	Material & Labor per unit	$              250.00	$                  180.00
B	Overhead cost per unit	$              386.63	$                  320.38
C = A + B	Total Cost per unit	$              636.63	$                  500.38

• [3]

Working		Model 145	Model 212
A	Price per unit	$              820.00	$                  480.00
B	Cost per unit	$              636.63	$                  500.38
C = A - B	Profit (Loss) per unit	$              183.37	$                  (20.38)