Exercise 17-9 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 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		$	454,000		Number of batches	870
	Machining			309,000		Machine hours	8,480
	Setups			224,000		Number of setups	40
			$	987,000
Finishing	Welding		$	190,000		Welding hours	5,600
	Inspecting			228,000		Number of inspections	860
	Rework			64,000		Rework orders	170
			$	482,000
Support	Purchasing		$	143,000		Purchase orders	489
	Providing space			34,000		Number of units	4,850
	Providing utilities			68,000		Number of units	4,850
			$	245,000

Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,800			3,050
Welding hours		2,200			3,400
Batches		435			435
Number of inspections		490			370
Machine hours		3,150			5,330
Setups		20			20
Rework orders		110			60
Purchase orders		326			163

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 $210 for Model 145 and $190 for Model 212. 3. If the market price for Model 145 is $800 and the market price for Model 212 is $270, determine the profit or loss per unit for each model.