Way Cool produces two different models of air conditioners. The company produces

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 $240 for Model 145 and $113 for Model 212.
3. If the market price for Model 145 is $727.94 and the market price for Model 212 is $383.49, determine the profit or loss per unit for each model.

Process Activity Overhead Cost Driver Quantity Components Changeover $ 511,750 Number of batches 890 Machining 361,487 Machine hours 7,910 Setups 74,600 Number of setups 40 $ 947,837 Finishing Welding $ 265,200 Welding hours 5,200 Inspecting 316,800 Number of inspections 880 Rework 42,500 Rework orders 170 $ 624,500 Support Purchasing $ 174,530 Purchase orders 563 Providing space 31,400 Number of units 5,400 Providing utilities 71,200 Number of units 5,400 $ 277,130

Explanation / Answer

1. Overhead cost per unit for each product line is:

2.   Total cost per unit for each product line is:

3. profit or loss per unit for each model is:

Process Activity Overhead Cost Driver Quantity Activity Rate Model 145 Model 21 Components Changeover 511,750 Number of batches 890 575.00 445 255,875 445 255,875 Machining 361,487 Machine hours 7,910 45.70 2,650 121,105 5,260 240,382 Setups 74,600 Number of setups 40 1865.00 20 37,300 20 37,300 Finishing Welding 265,200 Welding hours 5,200 51.00 2,200 112,200 3,000 153,000 Inspecting 316,800 Number of inspections 880 360.00 480 172,800 400 144,000 Rework 42,500 Rework orders 170 250.00 110 27,500 60 15,000 Support Purchasing 174,530 Purchase orders 563 310.00 375 116,250 188 58,280 Providing space 31,400 Number of units 5,400 5.81 1,800 10,467 3,600 20,933 Providing utilities 71,200 Number of units 5,400 13.19 1,800 23,733 3,600 47,467 Total cost 877,230 972,237 Total units 1,800 3,600 Cost per unit 487.35 270.07

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