Way Cool produces two different models of air conditioners. The company produces
ID: 2342955 • Letter: W
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.
Additional production information concerning its two product lines follows.
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 $200 for Model 145 and $112 for Model 212.
3. If the market price for Model 145 is $557.48 and the market price for Model 212 is $324.82, determine the profit or loss per unit for each model.
Explanation / Answer
Answer
Calculation of Activity Rates for allocation of Overheads
Process
Activity
Overhead Cost
Driver
Quantity
Activity Rates per Driver
Components
Changeover
$ 476,150.00
Number of batches
890
$ 535.00
Machining
$ 399,040.00
Machine hours
8,600
$ 46.40
Setups
$ 183,500.00
Number of setups
100
$ 1,835.00
$ 1,058,690.00
Finishing
Welding
$ 286,730.00
Welding hours
5,300
$ 54.10
Inspecting
$ 306,525.00
Number of inspections
915
$ 335.00
Rework
$ 50,000.00
Rework orders
200
$ 250.00
$ 643,255.00
Support
Purchasing
$ 183,600.00
Purchase orders
540
$ 340.00
Providing space & Providing Utilities
$ 146,640.00
Number of units
7,800
$ 18.80
$ 330,240.00
Allocation to Model 145
Activity Rates per Driver
No. of drivers
Cost Allocated
Components
Changeover
$ 535.00
445
$ 238,075.00
Machining
$ 46.40
3,250
$ 150,800.00
Setups
$ 1,835.00
50
$ 91,750.00
Finishing
Welding
$ 54.10
1,400
$ 75,740.00
Inspecting
$ 335.00
515
$ 172,525.00
Rework
$ 250.00
110
$ 27,500.00
Support
Purchasing
$ 340.00
360
$ 122,400.00
Providing space & Providing Utilities
$ 18.80
2,600
$ 48,880.00
Total Overhead allocated
$ 927,670.00
Total Units
2600
Overhead cost per unit Model 145
$ 356.80
Allocation to Model 212
Activity Rates per Driver
No. of drivers
Cost Allocated
Components
Changeover
$ 535.00
445
$ 238,075.00
Machining
$ 46.40
5,350
$ 248,240.00
Setups
$ 1,835.00
50
$ 91,750.00
Finishing
Welding
$ 54.10
3,900
$ 210,990.00
Inspecting
$ 335.00
400
$ 134,000.00
Rework
$ 250.00
90
$ 22,500.00
Support
Purchasing
$ 340.00
180
$ 61,200.00
Providing space & Providing Utilities
$ 18.80
5,200
$ 97,760.00
Total Overhead allocated
$ 1,104,515.00
Total Units
5200
Overhead cost per unit Model 212
$ 212.41
Model 145
Model 212
Direct Material & Labor per unit
$ 200.00
$ 112.00
Overhead cost allocated per unit
$ 356.80
$ 212.41
Total cost per unit
$ 556.80
$ 324.41
Model 145
Model 212
Market Price
$ 557.48
$ 324.82
Total cost per unit
$ 556.80
$ 324.41
Profit (Loss) per unit
$ 0.68
$ 0.41
Process
Activity
Overhead Cost
Driver
Quantity
Activity Rates per Driver
Components
Changeover
$ 476,150.00
Number of batches
890
$ 535.00
Machining
$ 399,040.00
Machine hours
8,600
$ 46.40
Setups
$ 183,500.00
Number of setups
100
$ 1,835.00
$ 1,058,690.00
Finishing
Welding
$ 286,730.00
Welding hours
5,300
$ 54.10
Inspecting
$ 306,525.00
Number of inspections
915
$ 335.00
Rework
$ 50,000.00
Rework orders
200
$ 250.00
$ 643,255.00
Support
Purchasing
$ 183,600.00
Purchase orders
540
$ 340.00
Providing space & Providing Utilities
$ 146,640.00
Number of units
7,800
$ 18.80
$ 330,240.00
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