Question

Problem 4-1A a-e (Video) 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 $1,575,500. Thus, the predetermined overhead rate is $16.36 or ($1,575,500 ÷ 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 $87,100 335,000 215,000 120,000 Forming Machine hours 151,900 35,000 27,000 8,000 Assembling Number of parts 410,130 217,000 165,000 52,000 Testing Number of tests 53,040 25,500 15,500 10,000 Painting Gallons 52,580 5,258 3,680 1,578 Packing and shipping Pounds 820,750 335,000 215,000 120,000 $1,575,500 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 $ $ Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.) Activity Cost Pool Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rate Receiving $ Pounds $ per pound Forming Machine hours $ per machine hour Assembling Parts $ per part Testing Tests $ per test Painting Gallons $ per gallon Packing and shipping Pounds $ per pound $

Answer 1

Combat Fire Inc.
Traditional costing	HF extinguisher	CF extinguisher	Total
Units produced (a)	54000	10200	64200
DM	999000	270300	1269300
DL	1026000	193800	1219800
Manufacturing OH ( 16.36*1.5*(a))	1325160	250308	1575468
Total Cost (b)	3350160	714408	4064568
OH cost per unit ( b/a)	62.04	70.04
ABC Costing
1- Calculation of Predetermined OH allocation Rate
	Total Cost /	Allocation base=	Predetermined OH allocation rate
Receiving	87100	335000	0.26	per pound
Forming	151900	35000	4.34	per machine hour
Assembling	410130	217000	1.89	per part
Testing	53040	25500	2.08	per test
Painting	52580	5258	10	per galllon
Packing and shipping	820750	335000	2.45	per pound
	1575500
Overhead Assigned	Activity Driver	Activity Rate	Total OH cost
HF extinguisher
Receiving	215000	0.26	55900
Forming	27000	4.34	117180
Assembling	165000	1.89	311850
Testing	15500	2.08	32240
Painting	3680	10	36800
Packing and shipping	215000	2.45	526750
Total OH cost assigned			1080720
OH cost per unit ( divided by 54000 units )			20.01333333
CF extinguisher
Receiving	120000	0.26	31200
Forming	8000	4.34	34720
Assembling	52000	1.89	98280
Testing	10000	2.08	20800
Painting	1578	10	15780
Packing and shipping	120000	2.45	294000
Total OH cost assigned			494780
OH cost per unit ( divided by 10200 units )			48.50784314
Total OH costs			1575500
ABC costing	HF extinguisher	CF extinguisher	Total
Units produced (a)	54000	10200	64200
DM	999000	270300	1269300
DL	1026000	193800	1219800
Manufacturing OH	1080720	494780	1575500
Total Cost (b)	3105720	958880	4064600
OH cost per unit ( b/a)	57.51333333	94.00784314
Activity
Receiving	non value added
Forming	value added
Assembling	value added
Testing	non value added
Painting	value added
Packing and shipping	value added