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
Components Changeover
$ 500,000
Number of batches
Machining
279,000
Machine hours
Setups
225,000
Number of setups
Quantity
800
6,000
120
$1,004,000
Finishing Welding
$ 180,300
Welding hours
3,000
Inspecting
210,000
Number of inspections
700
Rework
75,000
Rework orders
300
$ 465,300
Support
Purchasing
$ 135,000
Purchase orders
450
Providing space
32,000
Number of units
5,000
Providing utilities
65,000
Number of units
5,000
$ 232,000
Additional production information concerning its two product lines follows.
Model 145
Model 212
Units produced
1,500
3,500
Welding hours
800
2,200
Batches
400
400
Number of inspections
400
300
Machine hours
1,800
4,200
Setups
60
60
Rework orders
160
140
Purchase orders
300
150
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 $250 for Model 145
and $180 for Model 212.
3. 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.