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)]. Expected annual manufacturing overhead is $1,558,906. Thus, the predetermined overhead rate is $16.19 or ($1,558,906 ÷ 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. Expected Use of Drivers by Product Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Home Commercial Receiving Pounds $80,400 335,000 215,000 120,000 Forming Machine hours 157,500 35,000 27,000 8,000 Assembling Number of parts 390,600 217,000 165,000 52,000 Testing Number of tests 56,100 25,500 15,500 10,000 Painting Gallons 36,806 5,258 3,680 1,578 Packing and shipping Pounds 837,500 335,000 215,000 120,000 $1,558,906 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.) Home Model Commercial Model Total unit cost $ $ LINK TO TEXT LINK TO TEXT LINK TO TEXT 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 Expected 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 $ LINK TO TEXT LINK TO TEXT LINK TO TEXT 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 Expected Use of Drivers Activity-Based Overhead Rates Cost Assigned Expected 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)] $ $ LINK TO TEXT LINK TO TEXT LINK TO TEXT 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 $ $ LINK TO TEXT LINK TO TEXT LINK TO TEXT Classify each of the activities as a value-added activity or a non–value-added activity. Activity Receiving Forming Assembling Testing Painting Packing and shipping

Answer 1

ans 1
	Home	Commercial
Direct Material	$18.50	$26.50
Direct Labor	$19	$19
Overhead cost (1.5*16.19)	24.29	24.29
Cost per unit	$61.79	$69.79
					Expected Use of
					Drivers by Product
ans 2				ans 2
Activity Cost Pools	Cost Drivers	Estimated Overhead O	Expected Use of C	Activity rate A=O/C	Home H	Cost allocated H*A	Commercial C	Cost allocated C*A
			Cost Drivers
Receiving	Pounds	$80,400	335,000	$0.24	215,000	$51,600	120,000	$28,800
Forming	Machine hours	157,500	35,000	$4.50	27,000	$121,500	8,000	$36,000
Assembling	Number of parts	390,600	217,000	$1.80	165,000	$297,000	52,000	$93,600
Testing	Number of tests	56,100	25,500	$2.20	15,500	$34,100	10,000	$22,000
Painting	Gallons	36,806	5,258	$7.00	3,680	$25,760	1,578	$11,046
Packing and shipping	Pounds	837,500	335,000	$2.50	215,000	$537,500	120,000	$300,000
ans 3
Activity Cost Pools	Activity rate A=O/C	Home H	Cost allocated H*A	Commercial C	Cost allocated C*A
Receiving	0.24	215000	51600	120000	28800
Forming	4.50	27000	121500	8000	36000
Assembling	1.80	165000	297000	52000	93600
Testing	2.20	15500	34100	10000	22000
Painting	7.00	3680	25760	1578	11046
Packing and shipping	2.50	215000	537500	120000	300000
	Total overhead cost		1067460		491446
	No. of units		54000		10200
	Overhead cost per unit		19.77		48.18
ans 4
ABC method
	Home	Commercial
Direct Material	$18.50	$26.50
Direct Labor	$19	$19
Overhead cost	19.77	48.18
Cost per unit	$57.27	$93.68
ans 5
Forming	Value added
Assembling	Value added
Testing	Non value added
painting	Value added
Packing & shipping	Value added

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