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 $1,570,138. Thus, the predetermined overhead rate is $16.30 or ($1,570,138 ÷ 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		$83,750		335,000		215,000		120,000
Forming		Machine hours		150,850		35,000		27,000		8,000
Assembling		Number of parts		403,620		217,000		165,000		52,000
Testing		Number of tests		49,980		25,500		15,500		10,000
Painting		Gallons		57,838		5,258		3,680		1,578
Packing and shipping		Pounds		824,100		335,000		215,000		120,000
				$1,570,138

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

Home Model and Commercial Model Total Unit Costs

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

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.)

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.)

		Home Model						Commercial Model
Activity Cost Pool		Estimated Use of Drivers		Activity-Based Overhead Rates		Cost Assigned		Estimated Use of Drivers		Activity-Based Overhead Rates		Cost Assigned
Receiving		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 0 decimal places
Forming		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places
Assembling		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places
Testing		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places
Painting		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places
Packing and shipping		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places		enter a number of cost drivers used per activity		$enter a dollar amount rounded to 2 decimal places		enter a dollar amount rounded to 0 decimal places
Total costs assigned (a)						$enter a total amount						$enter a total amount
Units produced (b)						enter a number of units produced						enter a number of units produced
Overhead cost per unit [(a) ÷ (b)]						$enter a dollar amount rounded to 2 decimal places						$enter a dollar amount rounded to 2 decimal places

Compute the total cost per unit for each product under ABC. (Round answer to 2 decimal places, e.g. 12.25.)

		Home Model		Commercial Model
Total cost per unit		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

Answer 1