Using the plantwide overhead rate to assess prices
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.
|
Process
|
Activity
|
Overhead Cost
|
Driver
|
Quantity
|
|
Components
|
Changeover
|
$500.000
|
Number of batches 800
|
|
Machining
|
279.000
|
Machine hours 6,000
|
|
Setups
|
225.000
|
Number of setups 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
|
|
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
|
ISO
|
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 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 $800 and the market price for Model 212 is $470, determine the profit or loss per unit for each model. Comment on the results.