Real Cool produces two different models of air conditioners. The company produces the mechanical...


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. (Round OH rate and cost per unit answers to 2 decimal places.)

ProcessActivityOverhead CostDriverQuantity
CompnentsChangeover$452,000Number of batches750
Machining300,200Machine hours7,640
Setups229,000Number of setups40
FinishingWelding$180,100Welding hours3,600
Inspecting231,000Number of inspextions850
Rework81,250Rework orders210
SupportPurchasing$136,500PUrchase orders480
Providing space30,300Number of units4,500
Providing utilities50,910Number of units4,500

Additional production information concerning its two product lines follows.

Model 145Model 212
Units produced1,5003,000
Welding hours1,4002,200
Number of inspections610340
Machine hours2,2906,350
Rework orders80130
Purchase orders320160


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 products line if the direct labor and direct materials costs per unit are $220 for Model 145 and $150 for Model 212.

3. Assume if the market price for Model 145 is $755 and the market price for Model 212 is $590, determine the profit or loss per unit for each model.

Manufacturing - Traditional Costing:

In traditional costing, the manufacturing overhead costs are allocated to the products manufactured using a plant-wide, predetermined overhead rate. This rate is based on the estimated overhead cost and estimated overhead driver units.

Answer and Explanation: 1

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Estimated overhead cost $1,681,260
Estimated machine hours 7,640
Plantiwde overhead rate $220.06 per machine hour

Model 145Model 212

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Learn more about this topic:

Comparing Traditional Costing & Activity-Based Costing


Chapter 7 / Lesson 6

Traditional and activity-based costing methods have similarities and differences based on the production methods of a company. Learn about the costs in production and see the comparisons between traditional and activity-based costing systems.

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