Real Cool produces two different models of air conditioners. The company produces the 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. (Round OH rate and cost per unit answers to 2 decimal places.) ProcessActivityOverhead CostDriverQuantity
CompnentsChangeover$452,000Number of batches750
Machining300,200Machine hours7,640
Setups229,000Number of setups40
$981,200
FinishingWelding$180,100Welding hours3,600
Inspecting231,000Number of inspextions850
Rework81,250Rework orders210
$472,350
SupportPurchasing$136,500PUrchase orders480
Providing space30,300Number of units4,500
Providing utilities50,910Number of units4,500
$227,710
Additional production information concerning its two product lines follows.
Model 145Model 212
Units produced1,5003,000
Welding hours1,4002,200
Batches375375
Number of inspections610340
Machine hours2,2906,350
Setups2020
Rework orders80130
Purchase orders320160
Required:
1. Using a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line.
2. Determine the total cost per unit for each products line if the direct labor and direct materials costs per unit are $220 for Model 145 and $150 for Model 212.
3. Assume if the market price for Model 145 is $755 and the market price for Model 212 is $590, determine the profit or loss per unit for each model.

1. Plantwide Overhead Rate $ 220.06 per machine hour

Total Cost per Unit= Model 145 $ 555.96 per unit

Total cost per unit = Model 212 $ 616.94 per unit

Profit (loss)    Model 145  219.04

Loss Model 212  (26.94)

Explanation:

Real Cool

Process Activity               Overhead Cost         Driver         Quantity

Components

Changeover                      $452,000    Number of batches    750

Machining                             300,200        Machine hours      7,640

Setups                                229,000        Number of setups      40

                                          $981,200

Finishing  

Welding                         $180,100            Welding hours         3,600

Inspecting                     231,000       Number of inspections    850

Rework                         81,250              Rework orders             210

                                   $472,350

Support

Purchasing                $136,500           Purchase orders           480

Providing space          30,300          Number of units          4,500

Providing utilities        50,910            Number of units          4,500

                                  $227,710

Additional production information concerning its two product lines follows.

                                        Model 145           Model 212

Units produced                   1,500                  3,000

Welding hours                    1,400                   2,200

Batches                                 375                       375

Number of inspections          610                       340

Machine hours                       2,290                    6,350

Setups                                      20                             20

Rework orders                         80                             130

Purchase orders                    320                            160

We find the plantwide overhead rate by dividing the total overhead with the total machine hours.

1. Plantwide Overhead Rate= Total Factory Overhead/ Total Machine Hours

Plantwide Overhead Rate= $981,200+ $472,350+$227,710/7640

                                       = 1681260/7640= $ 220.06 per machine hour

We multiply the machine hours of each model to get the overhead .

2.  Cost of Model 145

Materials and Labor  = $220 *1500= $330,000

Overhead = $220.06 *2290= $503,937.4

Total Cost = $83,3937.4

Total Cost per Unit= $83,3937.4/1500= $ 555.96 per unit

Cost Of Model 212

Materials and Labor  = $150 *3000= $ 450,000

Overhead = $220.06 *6350= $ 1400,810

Total Cost = $ 1850810

Total cost per unit = $ 1850810/ 3000= $ 616.94 per unit

We find the profit or loss by subtracting the mfg cost from the market value.

3.                                        Model 145          Model 212

Market Price                     $775                     $590

Manufacturing Cost          ($555.96)               ($616.94)

Profit (loss)                          219.04                      (26.94)

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