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Way Cool produces two different models of air conditioners. The company produces mechanical systems in their components department. The mechanical systems are combined with the

Way Cool produces two different models of air conditioners. The company produces 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.

ProcessActivityOverhead CostDriverQuantity
ComponentsChangeover$ 500,000Number of batches800
Machining279,000Machine hours6,000
Setups225,000Number of setups120
$1,004,000
FinishingWelding$ 180,300Welding hours3,000
Inspecting210,000Number of inspections700
Rework75,000Rework orders300
$ 465,300
SupportPurchasing$ 135,000Purchase orders450
Providing space32,000Number of units5,000
Providing utilities65,000Number of units5,000
$ 232,000

Additional production information concerning its two product lines follows.

Model 145Model 212
Units produced1,5003,500
Welding hours8002,200
Batches400400
Number of inspections400300
Machine hours1,8004,200
Setups6060
Rework orders160140
Purchase orders300150


a. 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 the number of purchase orders.

b. Determine the total cost per unit for each product line if the direct labor and direct materials costs per unit are $250 for Model 145 and $180 for Model 212.

c. Assume if the market price for Model 145 is $820 and the market price for Model 212 is $480, determine the profit or loss per unit for each model.

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