Way Cool produces two different models of air conditioners. The company produces
ID: 2540494 • 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 follovw Process Activity Components Changeover Overhead Cost Driver Quantity $ 466,000 312,000 224,000 $1,002,000 Number of batches Machine hours Number of setups 910 7,960 200 Machining Setups Finishing Welding 190,000 230,000 62,000 $ 482,000 Welding hours Number of inspections Rework orders 5,300 840 270 Inspecting Rework $ 145, 000 34,500 71,000 $ 250,500 Purchase orders Number of units Number of units 513 5,020 5,020 Support Purchasing roviding spa Providing utilities P ce 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 2,000 2,200 455 510 2,650 100 150 342 3,020 3,100 455 330 5,310 100 120Explanation / Answer
Solution:
Part 1 – Departmental Overhead Rates
Components Department
Total Manufacturing Overhead
$1,002,000
$125.88
Per machine hour
Total Machine Hours
7,960
Finishing Department
Total Manufacturing Overhead
$482,000
$90.94
Per welding hour
Total Welding Hours
5,300
Support Department
Total Manufacturing Overhead
$250,500
$488.30
Per purchase order
Total Number of Purchase Orders
513
Assignment of Overhead Cost
Model 145
Activity Driver
Departmental OH Rate
Total Overhead Cost
Components
2650
Machine Hours
$125.88
$333,582.00
Finishing
2200
Welding Hours
$90.94
$200,068.00
Support
342
Purchase orders
$488.30
$166,998.60
Total Assigned Overhead Cost (A)
$700,648.60
Units Produced (B)
2,000
Overhead Cost per unit (A/B)
$350.32
Model 212
Activity Driver
Departmental OH Rate
Total Overhead Cost
Components
5310
Machine Hours
$125.88
$668,422.80
Finishing
3100
Welding Hours
$90.94
$281,914.00
Support
171
Purchase orders
$488.30
$83,499.30
Total Assigned Overhead Cost (A)
$1,033,836.10
Units Produced (B)
3,020
Overhead Cost per unit (A/B)
$342.33
Part 2 – Total Cost per unit
Model 145
Model 212
Material and labor per unit
$310
$190
Overhead Cost per unit (From part 1)
$350.32
$342.33
Total Cost per unit
$660.32
$532.33
Part 3 – Profit or loss per unit
Model 145
Model 212
Market price per unit
$1,400
$260
Cost per unit (from part 2)
$660.32
$532.33
Profit (loss) per unit
$739.68
($272.33)
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Components Department
Total Manufacturing Overhead
$1,002,000
$125.88
Per machine hour
Total Machine Hours
7,960
Finishing Department
Total Manufacturing Overhead
$482,000
$90.94
Per welding hour
Total Welding Hours
5,300
Support Department
Total Manufacturing Overhead
$250,500
$488.30
Per purchase order
Total Number of Purchase Orders
513
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