Exercise 04-11 Using ABC to assess prices LO P3 Way Cool produces two different models of air conditioners. The company produces the mechanical systems in its 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 Components Changeover Machining Setups Quantity 770 8,320 60 Finishing Welding Inspecting Overhead Cost Driver $ 481,250 Number of batches 380,224 Machine hours 111,000 Number of setups $972,474 $385, 320 Welding hours 279,450 Number of inspections 60,500 Rework orders $725,270 $ 155,930 Purchase orders 30, Number of units 33,590 Number of units $ 219,620 5,700 810 220 Rework Support Purchasing Providing space Providing utilities 503 3,308 3,300 Additional production information concerning its two product lines follows. Units produced Welding hours Batches Number of inspections Machine hours Setups Rework orders Purchase orders Model 145 1,100 1,600 385 460 3,050 30 120 335 Model 212 2,200 4,180 385 350 5,270 30 100 168 Required: 1. Using ABC, compute the overhead cost per unit for each product line. 2. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $230 for Model 145 and $120 for Model 212. 3. If the market price for Model 145 is $1,012.85 and the market price for Model 212 is $600.83, determine the profit or loss per unit for each model. Activity Expected Costs Model 145 Activity driver Overhead incurred assigned Expected Activity Activity Rate Activity a incurs Components Changeover $ 481,250 770 Number of batches Machining 380,224 B320 Machine hours 111,000 10 Setups s Setups Finishing Welding Inspecting Rework Support Purchasing Providing space and utilities 385,320 279.450 60.500 5.700 Welding hours 810 Inspections 220 Rework orders $ 155,930 503 Purchase orders 3,300 Units 63,690 $ 0 Total overhead cost Total units produced Overhead cost per unit Model 145 Model 212 Expected Activity Activity Rate Activity driver incurred Overhead assigned Activity driver incurred Overhead assigned 770 Number of batches 8,320 Machine hours 60 Setups 5,700 Welding hours 810 Inspections 220 Rework orders 503 Purchase orders 3,300 Units $ 0 $ 0 Total overhead cost Total units produced Overhead cost per unit Model 145 Model 212 Materials and Labor per unit Overhead cost per unit Total cost per unit Model 145 Model 212 Price per unit Cost per unit Profit (loss) per unit