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

Answer:

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)

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.