Way Cool produces two different models of air conditioners. The company produces
ID: 2536351 • 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 Overhead Cost Driver Quantity Process Activity Components Changeover Machining Setups $ 468,000 Number of batches 311,000 Machine hours 810 7,730 140 Number of setups 226,000 $1,005,000 $. 186,000 233,000 62,000 ?481,000 Finishing Welding Inspecting Rework welding hours Number of inspections Rework orders 4,200 805 230 Purchasing Providing space Providing utilities $ 147,000 Purchase orders 38,500 Number of units 64,000 Numberof units Support 489 4,660 4,660 $ 249,500 Additional production information concerning its two product lines follows Model 145 Model 212 Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders 1,600 1,000 405 455 2,450 3,060 3,200 405 350 5,280 140 326 90 163Explanation / Answer
Solution:
Part 1 –
Components Department
Overhead Costs
$1,005,000
$130.01
Per Machine Hour
Machine Hours
7730
Finishing Department
Overhead Costs
$481,000
$114.52
Per Welding Hour
Welding Hours
4200
Support Department
Overhead Costs
$249,500
$510.22
Per Purchase Order
Number of Purchase Orders
489
Model 145
Activity Driver
Departmental OH Rate
Total Overhead Cost
Components
2450
$130.01
$318,531.69
Finishing
1000
$114.52
$114,523.81
Support
326
$510.22
$166,333.33
Total Assigned Overhead Cost (A)
$599,388.84
Units Produced (B)
1,600
Overhead Cost per unit (A/B)
$374.62
Model 212
Activity Driver
Departmental OH Rate
Total Overhead Cost
Components
5280
$130.01
$686,468.31
Finishing
3200
$114.52
$366,476.19
Support
163
$510.22
$83,166.67
Total Assigned Overhead Cost (A)
$1,136,111.16
Units Produced (B)
3,060
Overhead Cost per unit (A/B)
$371.28
Part 2 – Total Cost per unit
Model 145
Model 212
Material and labor per unit
$240
$170
Overhead Cost per unit
$374.62
$371.28
Total Cost per unit
$614.62
$541.28
Part 3 --- Profit or Loss for each product
Model 145
Model 212
Market price per unit
$1,925
$280
Cost per unit (from part 2)
$614.62
$541.28
Profit (loss) per unit
$1,310.38
($261.28)
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Components Department
Overhead Costs
$1,005,000
$130.01
Per Machine Hour
Machine Hours
7730
Finishing Department
Overhead Costs
$481,000
$114.52
Per Welding Hour
Welding Hours
4200
Support Department
Overhead Costs
$249,500
$510.22
Per Purchase Order
Number of Purchase Orders
489
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