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		$	521,950		Number of batches	730
	Machining			359,751		Machine hours	7,770
	Setups			222,000		Number of setups	120
			$	1,103,701
Finishing	Welding		$	325,440		Welding hours	4,800
	Inspecting			316,750		Number of inspections	905
	Rework			48,000		Rework orders	200
			$	690,190
Support	Purchasing		$	163,480		Purchase orders	488
	Providing space			31,700		Number of units	8,700
	Providing utilities			130,120		Number of units	8,700
			$	325,300

Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		2,900			5,800
Welding hours		1,200			3,600
Batches		365			365
Number of inspections		515			390
Machine hours		2,450			5,320
Setups		60			60
Rework orders		90			110
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 $220 for Model 145 and $120 for Model 212. 3. If the market price for Model 145 is $541.83 and the market price for Model 212 is $325.19, 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.) Model 145 Activity driver Overhead incurred assigned Model 212 Activity driver Overhead incurred assigned Activity Expected Costs Expected Activity Activity Rate $ 521,950 730 Number of batches 7,770 Machine hours 359,751 222,000 120 Setups Components Changeover Machining Setups Finishing Welding Inspecting Rework 325,440 316,750 4,800 Welding hours 905 Inspections 200 Rework orders 48,000 Support Purchasing Providing space and utilities $ 163,480 488 Purchase orders 161,820 8,700 Units Total overhead cost Total units produced Overhead cost per unit Required 1 Required 2 > 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 $220 for Model 145 and $120 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 $541.83 and the market price for Model 212 is $325.19, 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