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Exercise 4-8 Using departmental overhead rates to assess prices LO P2

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		$	470,000		Number of batches	890
	Machining			304,000		Machine hours	8,130
	Setups			225,000		Number of setups	120
			$	999,000
Finishing	Welding		$	192,000		Welding hours	5,200
	Inspecting			235,000		Number of inspections	850
	Rework			61,000		Rework orders	220
			$	488,000
Support	Purchasing		$	145,000		Purchase orders	543
	Providing space			33,000		Number of units	4,620
	Providing utilities			65,000		Number of units	4,620
			$	243,000

Additional production information concerning its two product lines follows.

	Model 145			Model 212
Units produced		1,500			3,120
Welding hours		2,000			3,200
Batches		445			445
Number of inspections		480			370
Machine hours		2,850			5,280
Setups		60			60
Rework orders		160			60
Purchase orders		362			181

Required: 1. Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhead assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders. 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 $170 for Model 212. 3. If the market price for Model 145 is $1,700 and the market price for Model 212 is $300, determine the profit or loss per unit for each model.

Determine departmental overhead rates and compute the overhead cost per unit for each product line. Base your overhea assignment for the components department on machine hours. Use welding hours to assign overhead costs to the finishing department. Assign costs to the support department based on number of purchase orders. (Round your intermediate calculations and per unit cost answers to 2 decimal places.) Show less Components department inishing department upport department Activity Departmental Total Overhead Cost Driver Model 145 OH Rate Components Finishing Support

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