Question

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

Answer 1

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