Exercise 4-7 Using the plantwide overhead rate to assess prices LO P1 Way Cool p

Question

Exercise 4-7 Using the plantwide overhead rate to assess prices LO P1

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. (Loss amounts should be indicated with a minus sign. Round your intermediate calculations and round "Cost per unit and OH rate" answers to 2 decimal places.)

   
Additional production information concerning its two product lines follows.

Process Activity Overhead Cost Driver Quantity Components Changeover $ 452,000 Number of batches 830 Machining 301,000 Machine hours 7,530 Setups 226,500 Number of setups 160 $ 979,500 Finishing Welding $ 182,400 Welding hours 5,500 Inspecting 226,000 Number of inspections 785 Rework 61,750 Rework orders 250 $ 470,150 Support Purchasing $ 138,000 Purchase orders 533 Providing space 30,550 Number of units 4,800 Providing utilities 60,130 Number of units 4,800 $ 228,680

Explanation / Answer

1) Total Overhead cost for all processes = (Component+Finishing+Support) Overhead cost

= ($979,500+$470,150+$228,680) = $1,678,330

Machine Hours = 7,530 hours

Plantwide Overhead rate = Total Overhead costs/Machine hours = $1,678,330/7,530 = $222.89

Calculation of Overhead cost per unit (Amount in $)

2) Calculation of total cost per unit (Amount in $)

3) Calculation of profit or loss per unit (Amount in $)

Particulars Model 145 Model 212 Machine Hours (A) 2,280 5,250 Plantwide Overhead rate (B) 222.89 222.89 Overhead cost (C = A*B) 508,189 1,170,171 Units produced (D) 1,600 3,200 Overhead cost per unit (C/D) 317.62 365.68

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