Question

In: Accounting

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a...

Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The home model is a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion. Therefore, total annual direct labor hours are 96,300 or [1.5 hours × (54,000 + 10,200)]. Estimated annual manufacturing overhead is $ 1,590,008. Thus, the predetermined overhead rate is $ 16.51 or ($ 1,590,008 ÷ 96,300) per direct labor hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models.

The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Estimated Use of
Drivers by Product

Activity Cost Pools

Cost Drivers

Estimated Overhead

Estimated Use of
Cost Drivers

Home

Commercial

Receiving Pounds

$ 90,450

335,000

215,000

120,000

Forming Machine hours

155,050

35,000

27,000

8,000

Assembling Number of parts

412,300

217,000

165,000

52,000

Testing Number of tests

46,920

25,500

15,500

10,000

Painting Gallons

57,838

5,258

3,680

1,578

Packing and shipping Pounds

827,450

335,000

215,000

120,000

$ 1,590,008

(a)

Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.)

Home Model

Commercial Model

Total unit cost

$ enter a dollar amount rounded to 2 decimal places

$ enter a dollar amount rounded to 2 decimal places

2.)Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver). (Round your answers to 2 decimal places, e.g. 2.25.)

3.)Complete the schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Use rates from part b above and round cost assigned to 0 decimal places, e.g. 12,250. Round overhead per unit to 2 decimal places, e.g. 2.25. Note that due to rounding your total cost assigned will be slightly different than calculated above.)
Cost Driver Home Model
Commercial Model
Cost Assigned

4.) Compute the total cost per unit for each product under ABC. (Round your answers to 2 decimal places, e.g. 12.25.)
Home Model $
Commercial Model $

5.)Classify each of the activities as a value-added activity or a non-value-added activity.
Activity
Receiving value-addednon-value-added
Forming non-value-addedvalue-added
Assembling value-addednon-value-added
Testing value-addednon-value-added
Painting non-value-addedvalue-added
Packing and shipping value-addednon-value-added

Solutions

Expert Solution

Solution a:

Computation of unit cost of each product - Traditional costing - Combat Fire Inc.
Particulars Home Model Commercial Model
Direct material $18.50 $26.50
Direct labor $19.00 $19.00
Manufacturing overhead (16.51*1.5) $24.77 $24.77
Unit Product Cost $62.27 $70.27

Solution 2:

Determination of activity rate for each activity
Activity cost pool Estimated Overhead Cost Expected use of cost drivers Activity Rate
Receiving $90,450.00 335000 Pounds $0.27
Forming $1,55,050.00 35000 Machine hours $4.43
Assembling $4,12,300.00 217000 parts $1.90
Testing $46,920.00 25500 tests $1.84
Painting $57,838.00 5258 Gallon $11.00
Packing and shipping $8,27,450.00 335000 Pounds $2.47
Total $15,90,008.00

Solution 3:

Allocation of overhead and computation of overhead cost per unit
Activity cost pool Home Model Commercial Model
Expected use of Drivers Overehad rates Cost Assigned Expected use of Drivers Overehad rates Cost Assigned
Receiving 215000 0.27 $58,050 120000 0.27 $32,400
Forming 27000 4.43 $1,19,610 8000 4.43 $35,440
Assembling 165000 1.90 $3,13,500 52000 1.90 $98,800
Testing 15500 1.84 $28,520 10000 1.84 $18,400
Painting 3680 11.00 $40,480 1578 11.00 $17,358
Packing and shipping 215000 2.47 $5,31,050 120000 2.47 $2,96,400
Total $10,91,210 $4,98,798
Nos of units 54000 10200
Overhead cost per unit $20.21 $48.90

Solution 4:

Computation of unit cost of each product - Activity Based costing - Combat Fire Inc.
Particulars Home Model Commercial Model
Direct material $18.50 $26.50
Direct labor $19.00 $19.00
Manufacturing overhead $20.21 $48.90
Unit Product Cost $57.71 $94.40

Solution 5:

Activity Classification
Receiving Non value added activity
Forming Value added activity
Assembling Value added activity
Testing Non value added activity
Painting Value added activity
Packing and shipping Value added activity

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