Question

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 $ $ $ $ Forming $ $ Assembling $ $ Testing $ $ Painting $ $ Packing and shipping $ $      Total costs assigned (a) $ $      Units produced (b)      Overhead cost per unit [(a) ÷ (b)] $ $

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 $

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 $ $

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 Non-value-addedValue-added Testing Value-addedNon-value-added Painting Value-addedNon-value-added Packing and shipping Value-addedNon-value-added

Answer 1

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