Chapter 4 Excercise Question 4 Way Cool produces two dlmerent models of air cond

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Chapter 4 Excercise Question 4

Way Cool produces two dlmerent models of air condirioners. The company produces the mechanical sjystems In thelr components department. The mechanical systems are combined win the housing aseembly ih ts rishing department. The acties, costs, and drvers assoclated witin these two manutacturing proce68e6 and the production support process tollow Overnead Cost 5 462,000 Number of batches 310 302.000 Machine hours 224,000 Number of setups 5 988000 Finishing welding 190,000 welding hours 3.700 228000 Number of Inspections 63.000 Rework orders 180 5 481,000 Support Purchasing 5 Providing space Providing utilies 149,000 Purchase orders 33.000 Number of unita 71,000 Number of unita 5 253,000 Adartional production Information conceming ts two prooduct lines tollows Model 145 1.900 Model 212 Units proouced Welding hours 405 Number of Inspections Machine hours 405 390 5310 60 Rework orders Purchaee orders 325 163

Explanation / Answer

Requirement 1 Determination of departmental overhead rates Component department                 Total cost 988000 119.61                 Machine hours 8260 Finishing department               Total costs 481000 130.00               Welding hours 3700 Support department              Total costs 253000 517.38              Purchase orders 489 Activity driver Departmental Overhead Rate Total overhead cost Model 145 Component 2950 119.61 352857.14 Finishing 800 130.00 104000.00 support 326 517.38 168666.67 Total overhead cost 625523.81 Overhead Cost per unit (divide total cost by 1900 units) 329.22 Activity driver Departmental Overhead Rate Total overhead cost Model 212 Component 5310 119.61 635142.86 Finishing 2900 130.00 377000.00 support 163 517.38 84333.33 Total overhead cost 1096476.19 Overhead Cost per unit( divide total cost by 3120 units) 351.43 Requirement 2 Determination of total cost per unit Model 145 Model 212 Material and Labor costs 290 140 Overhead cost per units 329.22 351.43 Total cost per unit 619.22 491.43 Requirement 3 Determination of profit or loss per unit of product Market price per unit 1700 260 Cost per unit 619.22 491.43 Profit(Loss) per unit 1080.78 -231.43

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