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	Overhead Cost				Driver	Quantity
Components	Changeover		$	509,550		Number of batches	790
	Machining			393,681		Machine hours	8,430
	Setups			109,500		Number of setups	60
			$	1,012,731
Finishing	Welding		$	320,100		Welding hours	5,500
	Inspecting			293,825		Number of inspections	805
	Rework			47,700		Rework orders	180
			$	661,625
Support	Purchasing		$	151,280		Purchase orders	488
	Providing space			32,000		Number of units	4,500
	Providing utilities			52,150		Number of units	4,500
			$	235,430

Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,500			3,000
Welding hours		2,000			3,500
Batches		395			395
Number of inspections		475			330
Machine hours		3,150			5,280
Setups		30			30
Rework orders		90			90
Purchase orders		325			163

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 $240 for Model 145 and $115 for Model 212. 3. If the market price for Model 145 is $839.92 and the market price for Model 212 is $452.24, determine the profit or loss per unit for each model.

Required 1 Required 2 Required 3 Using ABC, compute the overhead cost per unit for each product line. (Round your final answers to 2 decimal places.) Expected Costs Expected Activity Activity Rate Model 145 Activity driver Overhead incurred assigned Model 212 Activity driver Overhead incurred assigned $ 509,550 393,681 790 Number of batches 8,430 Machine hours 60 Setups 109,500 Activity Components Changeover Machining Setups Finishing Welding Inspecting Rework Support Purchasing Providing space and utilities $ 320,100 293.825 47,700 5,500 Welding hours 805 Inspections 180 Rework orders $ 151.280 84.150 488 Purchase orders 4,500 Units Total overhead cost Total units produced Overhead cost per unit Required 1 Required 2 Required 3 Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $240 for Model 145 and $115 for Model 212. (Round your final answers to 2 decimal places.) Model 145 Model 212 Materials and Labor per unit Overhead cost per unit Total cost per unit Required 1 Required 2 Required 3 If the market price for Model 145 is $839.92 and the market price for Model 212 is $452.24, determine the profit or loss per unit for each model. (Round your final answers to 2 decimal places.) Model 145 Model 212 Price per unit Cost per unit Profit (loss) per unit