Question

*I NEED PARTS E AND F ONLY, CHECKING MY WORK, THANK YOU!*

P17.1A 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 $1,584,280. Thus, the predetermined overhead rate is $16.45 or ($1,584,280 ÷ 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.

Assign overhead using traditional costing and ABC; compute unit costs; classify activities as value- or non-value-added.

The company's managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

Activity Cost Pools		Cost Drivers		Estimated Overhead		Estimated Use of Cost Drivers		Estimated Use of Drivers by Product
								Home		Commercial
Receiving		Pounds		$  80,400		335,000		215,000		120,000
Forming		Machine hours		150,500		35,000		27,000		8,000
Assembling		Number of parts		412,300		217,000		165,000		52,000
Testing		Number of tests		51,000		25,500		15,500		10,000
Painting		Gallons		52,580		5,258		3,680		1,578
Packing and shipping		Pounds		837,500		335,000		215,000		120,000
				$1,584,280

Instructions

a. Under traditional product costing, compute the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 17.3).

a. Unit cost—H.M. $62.18

b. Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).

c. Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)

c. Cost assigned—H.M. $1,086,500

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

d. Cost/unit—H.M. $57.62

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

f. Comment on (1) the comparative overhead cost per unit for the two products under ABC, and (2) the comparative total costs per unit under traditional costing and ABC.

Answer 1

A		Home Fire Extinguisher (HM)	Commercial Fire Extinguisher (CM)
	Direct Material	18.5	26.5
	Direct Labor	19	19
	Overheads Cost	24.675	24.675
	(1.5 hr*16.45)
	Total Unit Product Cost	62.175	70.175
B	Schedule showing activity based overheads rates
	Activity	Drivers	Overheads	No. Of Driver	Rate Per Driver
	Receiving	Pounds	80400	335000	0.24
	Forming	Machine Hours	150500	35000	4.3
	Assembling	No. Of Parts	412300	217000	1.9
	Testing	No. Of tests	51000	25500	2
	Painting	Gallons	52580	5258	10
	Packing and Shipping	Pounds	837500	335000	2.5
	Total		1584280

c	Schedule assigning overheads cost to both product based on Activity Drivers
			HM		CM		Total Cost Assigned
	Activity	Rate Per Driver	Usage of Driver	Cost Assigned	Usage of Driver	Cost Assigned
	Receiving	0.24	215000	51600	120000	28800	80400
	Forming	4.3	27000	116100	8000	34400	150500
	Assembling	1.9	165000	313500	52000	98800	412300
	Testing	2	15500	31000	10000	20000	51000
	Painting	10	3680	36800	1578	15780	52580
	Packing and Shipping	2.5	215000	537500	120000	300000	837500
				1086500		497780	1584280
d	Total Cost Per Unit Under ABC
		HM	CM
	Total Overheads Cost Assigned	1086500	497780
	Units Produced	54000	10200
	Overheads Cost per unit	20.12037037	48.80196078
		Home Fire Extinguisher (HM)	Commercial Fire Extinguisher (CM)
	Direct Material	18.5	26.5
	Direct Labor	19	19
	Overheads Cost	20.12037037	48.80196078
	Total Unit Product Cost	57.62037037	94.30196078

E	Classification of activity
	Receiving	Non Value Added
	Forming	Value Added
	Assembling	Value Added
	Testing	Non Value Added
	Painting	Value Added
	Packing and Shipping	Value Added
F	Comparative Overheads Cost Per Unit for Both Products under both method
		HM	CM
	Traditional Method	24.675	24.675
	ABC	20.12037037	48.80196078
	Difference	4.55462963	-24.12696078
	In Traditional System, overheads allocation was based on direct labor hours. Both product needs same direct labor hours per unit. Therefore overheads per unit was same for both products. While in ABC, overheads allocated based on 6 different rates based on different activities and their usage by both products. Therefore overheads per unit differ for both products. ABC is more accurate method for overheads allocation. It helps for deciding the product cost correctly.