A) Exercise 4-8 Using departmental overhead rates to assess prices LO P2 Way Coo

Question

A) Exercise 4-8 Using departmental overhead rates to assess prices LO P2

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. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders.
2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $270 for Model 145 and $210 for Model 212.
3. If the market price for Model 145 is $1,475 and the market price for Model 212 is $320, determine the profit or loss per unit for each model.

B)

Exercise 4-6 Assigning overhead costs using the plantwide rate and departmental rate methods LO P1, P2

Laval produces lamps and home lighting fixtures. Its most popular product is a brushed aluminum desk lamp. This lamp is made from components shaped in the fabricating department and assembled in the assembly department. Information related to the 33,000 desk lamps produced annually follows.

  
Expected overhead cost and related data for the two production departments follow.

  
Required
1. Determine the plantwide overhead rate for Laval using direct labor hours as a base.
2. Determine the total manufacturing cost per unit for the aluminum desk lamp using the plantwide overhead rate.
3. Compute departmental overhead rates based on machine hours in the fabricating department and direct labor hours in the assembly department.
4. Use departmental overhead rates from requirement 3 to determine the total manufacturing cost per unit for the aluminum desk lamps.

Process Activity Overhead Cost Driver Quantity Components Changeover $ 458,000 Number of batches 870 Machining 313,000 Machine hours 8,320 Setups 232,000 Number of setups 200 $ 1,003,000 Finishing Welding $ 188,000 Welding hours 5,900 Inspecting 233,000 Number of inspections 875 Rework 61,500 Rework orders 160 $ 482,500 Support Purchasing $ 135,000 Purchase orders 525 Providing space 33,000 Number of units 4,820 Providing utilities 67,000 Number of units 4,820 $ 235,000

Explanation / Answer

Answer A)

2.Total Cost per unit:

3. Profit/(loss) per unit:

Answer B)

Plantwide Overhead Rate = Total Overhead Cost / Total Direct Labour Hours = 735,000 / 515,000 = 1.43 (Rounded off)

Answer 2:Calculating Manufacturing Cost per Unit for aluminium desk lamp

Answer 3:

Overhead Cost of Fabricating Dept. = 330,000

Total Machine Hours = 169,000

Overhead Rate (Fabricating Dept.)= 330,000 / 169,000 = 1.95 (Rounded off) per MH

Overhead Cost of Assembly Dept. = 405,000

Total Direct Labour Hours = 325,000

Overhead Rate (Assembly Dept.)= 405,000 / 325,000 = 1.25 (Rounded off) per DLH

Answer 4:

Finishing Welding 1,88,000 5,900 Welding hours 31.86 per welding hour 2,400 90,864 3,500 1,32,510 Inspection 2,33,000 875 Number of inspections 266.29 per inspection 505 1,34,477 370 98,527 Rework 61,500 160 Rework orders 384.38 per rework order 110 42,282 50 19,219 Support Purchasing 1,35,000 525 Purchase orders 257.14 per purchase order 350 90,000 175 45,000 Providing space & utilities 67,000 4,820 Number of units 13.9 per unit 1,800 25,020 3,020 41,978 Total Overhead Cost 8,42,384 8,80,491 Total Units Produced 1800 3020 Overhead Cost per unit 467.99 291.55

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