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 $1,569,238. Thus, the predetermined overhead rate is $ 16.30 or ($ 1,569,238 ÷ 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		155,050		35,000		27,000		8,000
Assembling		Number of parts		403,620		217,000		165,000		52,000
Testing		Number of tests		44,880		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
				$ 1,569,238

(a)

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		$ (enter a dollar amount rounded to 2 decimal places)		$ (enter a dollar amount rounded to 2 decimal places)

2.)Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver). (Round your answers to 2 decimal places, e.g. 2.25.)

3.)Complete the schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Use rates from part b above and round cost assigned to 0 decimal places, e.g. 12,250. Round overhead per unit to 2 decimal places, e.g. 2.25. Note that due to rounding your total cost assigned will be slightly different than calculated above.)
Cost Driver Home Model
Commercial Model
Cost Assigned

4.) Compute the total cost per unit for each product under ABC. (Round your answers to 2 decimal places, e.g. 12.25.)
Home Model $
Commercial Model $

5.)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 value-addednon-value-added
Testing value-addednon-value-added
Painting non-value-addedvalue-added
Packing and shipping value-addednon-value-added

Answer 1

			Home		Commercial
			Model		model
	total unit cost		61.95		69.95	answer
	materials		18.50		26.50
	direct labor		19.00		19.00
	overhead (16.30*1.5)		24.45		24.45
	total unit cost		61.95		69.95
			Estimated	expected	activity based overhead
	Activity cost pool		overhead	drivers	rate
	Receiving		83,750	335,000	0.25	per pound
	Forming		155,050	35,000	4.43	per machine hour
	Assembling		403,620	217,000	1.86	per part
	Testing		44,880	25,500	1.76	per test
	Painting		57,838	5,258	11	per gallon
	packing & shipping		824,100	335,000	2.46	per pound
			1,569,238
			Home Model			Commercial model
	Activity cost pool		expected use	oh rate	cost assigned	expected use	oh rate	cost assigned
	Receiving		215,000	0.25	53750	120,000	0.25	30000
	Forming		27,000	4.43	119610	8000	4.43	35440
	Assembling		165,000	1.86	306900	52000	1.86	96720
	Testing		15,500	1.76	27280	10,000	1.76	17600
	Painting		3,680	11	40480	1,578	11	17358
	packing & shipping		215,000	2.46	528900	120,000	2.46	295200
	total costs assigned				1076920			492318
	units produced				54,000			10,200
	overhead cost per unit				19.94			48.27
				home	Commercial
	total cost per unit			57.44	93.77
	Activity
	Receiving			non value added
	Forming			value added
	Assembling			value added
	Testing			non value added
	Painting			value added
	packing & shipping			value added