In: Accounting
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 |
||||||||||
---|---|---|---|---|---|---|---|---|---|---|
Activity Cost Pools |
Cost Drivers |
Estimated Overhead |
Estimated Use of |
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
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 |