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
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.
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 | |||||||
Additional production information concerning its two product lines follows.
Model 145 | Model 212 | |||||
Units produced | 1,800 | 3,020 | ||||
Welding hours | 2,400 | 3,500 | ||||
Batches | 435 | 435 | ||||
Number of inspections | 505 | 370 | ||||
Machine hours | 3,050 | 5,270 | ||||
Setups | 100 | 100 | ||||
Rework orders | 110 | 50 | ||||
Purchase orders | 350 | 175 | ||||
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.
Direct materials | $ | 270,000 | |
Direct labor | |||
Fabricating department (6,000 DLH $28 per DLH) | $ | 168,000 | |
Assembly department (16,000 DLH $29 per DLH) | $ | 464,000 | |
Machine hours | |||
Fabricating department | 14,700 | MH | |
Assembly department | 20,300 | MH | |
Expected overhead cost and related data for the two production departments follow.
Fabricating | Assembly | |||||
Direct labor hours | 190,000 | DLH | 325,000 | DLH | ||
Machine hours | 169,000 | MH | 121,000 | MH | ||
Overhead cost | $ | 330,000 | $ | 405,000 | ||
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.
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