FINANCE

Exercise 17-9 Using the plantwide Overhead rate to assess prices L.O. A1, P1

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
     


     
      $ 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 a plantwide overhead rate based on machine hours, compute the overhead cost per unit for each product line. (Round your intermediate calculations and final answers to 2 decimal places. Omit the “$” sign in your response.)

 

  Product Overhead cost
  Model 145  
  Model 212  

 

2. Determine the total cost per unit for each products line if the direct labor and direct materials costs per unit are $250 for Model 145 and $180 for Model 212. (Round your intermediate and final answers to 2 decimal places. Omit the “$” sign in your response.)

 

  Product Total cost
  Model 145  
  Model 212  

 

3. Assume if the market price for Model 145 is $800 and the market price for Model 212 is $470, determine the profit or loss per unit for each model. (Input all amounts as positive values. Round your intermediate and final answers to 2 decimal places. Omit the “$” sign in your response.)

 

     
  Model 145    
  Model 212    

rev: 03-04-11

5.

Exercise 17-13 Using ABC for strategic decisions L.O. P1, P3

Consider the following data for two products of Rowena Manufacturing.

 

  Product A Product B
  Number of units produced   10,000 units   2,000 units
  Direct labor cost(@$24 per DLH)   0.20 DLH per unit   0.25 DLH per unit
  Direct materials cost   $ 2 per unit   $ 3 per unit

 

Activity Overhead costs
  Machine setup   $ 121,000  
  Materials handling     48,000  
  Quality control     80,000  
   


 
    $ 249,000  
   




 

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