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 $1,573,108. Thus, the predetermined overhead rate is $16.34 or ($1,573,108 ÷ 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		150,150		35,000		27,000		8,000
Assembling		Number of parts		399,280		217,000		165,000		52,000
Testing		Number of tests		47,940		25,500		15,500		10,000
Painting		Gallons		57,838		5,258		3,680		1,578
Packing and shipping		Pounds		830,800		335,000		215,000		120,000
				$1,573,108

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		$enter a dollar amount		enter an amount of pounds		Pounds		$enter a dollar amount per pound rounded to 2 decimal places	per pound
Forming		enter a dollar amount		enter a number of machine hours		Machine hours		$enter a dollar amount per machine hour rounded to 2 decimal places	per machine hour
Assembling		enter a dollar amount		enter a number of parts		Parts		$enter a dollar amount per part rounded to 2 decimal places	per part
Testing		enter a dollar amount		enter a number of tests		Tests		$enter a dollar amount per test rounded to 2 decimal places	per test
Painting		enter a dollar amount		enter an amount of gallons		Gallons		$enter a dollar amount per gallon rounded to 2 decimal places	per gallon
Packing and shipping		enter a dollar amount		enter an amount of pounds		Pounds		$enter a dollar amount per pound rounded to 2 decimal places	per pound
		$enter a total amount

Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Round overhead cost per unit to 2 decimal places, e.g. 12.25 and cost assigned to 0 decimal places, e.g. 2,500.)

Compute the total cost per unit for each product under ABC.

Answer 1

OH cost per unit (Traditional costing)
			Home	Commercial
DLH per unit		1.5	1.5
Multiply: Oh rate per DLH	16.34	16.34
Oh cost per unit		24.51	24.51
Unit cost per Traditional costing
			Home	Commercial
Material cost		18.5	26.5
Labour cost	(1.50*19)	28.5	28.5
Overheads cost		24.51	24.51
Unit cost per Traditional costing	71.51	79.51
Activity Based:
Activity rate:
Activity		Est. Overheads	Cost drivers	Activity rate
Receiving		87100		335000	0.26	per pound
Forming		150150		35000	4.29	per Mh
Assembling	399280		217000	1.84	Per part
Testing		47940		25500	1.88	per test
painting		57838		5258	11	per gallon
Packing and shipping	830800		335000	2.48	per pound
Assigning Overheads
			Home	Commercial
Activity		Rate	Driver	Oh cost	Driver	Oh cost
Receiving		0.26	215000	55900	120000	31200
Forming		4.29	27000	115830	8,000	34320
Assembling	1.84	165000	303600	52000	95680
Testing		1.88	15500	29140	10000	18800
painting		11	3680	40480	1578	17358
Packing and shipping	2.48	215000	533200	120000	297600
	Total overheads		1078150		494958
	Divide: Units		54000		10200
	Oh cost per unit		19.97		48.53
Unit cost per ABC
			Home	Commercial
Material cost		18.5	26.5
Labour cost	(1.50*19)	28.5	28.5
Overheads cost		19.97	48.53
Unit cost per ABC		66.97	103.53