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 $1,566,090. Thus, the predetermined overhead rate is $16.26 or ($1,566,090 ÷ 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		151,900		35,000		27,000		8,000
Assembling		Number of parts		401,450		217,000		165,000		52,000
Testing		Number of tests		48,960		25,500		15,500		10,000
Painting		Gallons		52,580		5,258		3,680		1,578
Packing and shipping		Pounds		827,450		335,000		215,000		120,000
				$1,566,090

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

eTextbook and Media

  

  

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

eTextbook and Media

  

  

Classify each of the activities as a value-added activity or a non–value-added activity.

Activity
Receiving		select between value added and non-value added                                                                      Value-addedNon-value-added
Forming		select between value added and non-value added                                                                      Value-addedNon-value-added
Assembling		select between value added and non-value added                                                                      Non-value-addedValue-added
Testing		select between value added and non-value added                                                                      Value-addedNon-value-added
Painting		select between value added and non-value added                                                                      Value-addedNon-value-added
Packing and shipping		select between value added and non-value added                                                                      Value-addedNon-value-added

Answer 1

Q.1		Home Model	Commercial Model
	Total Unit Cost	61.89	69.89	(See Note 1)
	Note 1: Calculation of Total Unit cost per unit
		Home Model	Commercial Model
	Direct Material	18.50	26.50
	Direct Labour	19.00	19.00
	Overhead	24.39	24.39	(16.26 * 1.5 hours)
	Total	61.89	69.89
Q.2	Activity Cost Pool	Estimated Overhead	Estimated Use of Cost Driver		Activity based overhead rate
	Receiving	83750	335000	pounds	0.25	per pounds
	Forming	151900	35000	m h	4.34	per m h
	Assembling	401450	217000	parts	1.85	per parts
	Testing	48960	25500	tests	1.92	per tests
	Painting	52580	5258	gallons	10.00	per gallons
	Packaging	827450	335000	pounds	2.47	per pounds
	Total	1566090
Q.3		Home Model	Commercial Model
	Activity Cost Pool	Estimated Use of Cost Driver	Activity based overhead rate	Cost Assigned	Estimated Use of Cost Driver	Activity based overhead rate	Cost Assigned
	Receiving	215000	0.25	53750	120000	0.25	30000
	Forming	27000	4.34	117180	8000	4.34	34720
	Assembling	165000	1.85	305250	52000	1.85	96200
	Testing	15500	1.92	29760	10000	1.92	19200
	Painting	3680	10.00	36800	1578	10	15780
	Packaging	215000	2.47	531050	120000	2.47	296400
	Total cost assigned		1073790			492300
	Units Produced		54000			10200
	Overhead cost per unit		19.89			48.26
	Note 1: Calculation of Total Unit cost per unit
		Home Model	Commercial Model
	Direct Material	18.5	26.5
	Direct Labour	19	19
	Overhead	19.89	48.26
	Total	57.39	93.76
Q.4	Receiving	Non value added
	Forming	Value Added
	Assembling	Value Added
	Testing	Non value added
	Painting	Value Added
	Packaging	Value Added