Exercise 4-9 Using ABC to assess prices LO P3

Way 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.

Process	Activity	Overhead Cost				Driver	Quantity
Components	Changeover		$	485,050		Number of batches	890
	Machining			366,275		Machine hours	8,050
	Setups			334,800		Number of setups	180
			$	1,186,125
Finishing	Welding		$	280,500		Welding hours	5,000
	Inspecting			275,625		Number of inspections	875
	Rework			38,000		Rework orders	190
			$	594,125
Support	Purchasing		$	172,800		Purchase orders	540
	Providing space			31,400		Number of units	5,700
	Providing utilities			76,330		Number of units	5,700
			$	280,530

Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,900			3,800
Welding hours		1,800			3,200
Batches		445			445
Number of inspections		475			400
Machine hours		2,750			5,300
Setups		90			90
Rework orders		90			100
Purchase orders		360			180

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 $210 for Model 145 and $120 for Model 212. 3. If the market price for Model 145 is $713.07 and the market price for Model 212 is $411.47, determine the profit or loss per unit for each model.