Combat Fire, Inc. manufactures steel cylinders and nozzles fortwo models of fire extinguishers: (1) a home fire extinguisher and(2) a commercial fire extinguisher. The home model is ahigh-volume (54,000 units), half-gallon cylinder that holds 2 1/2pounds of multi-purpose dry chemical at 480 PSI. The commercialmodel is a low-volume (10,200 units), two-gallon cylinder thatholds 10 pounds of multi-purpose dry chemical at 390 PSI. Bothproducts 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 materialscost per unit is $18.50 for the home model and $26.50 for thecommercial model. The direct labor cost is $19 per unit for boththe home and the commercial models.
The company’s managers identified six activity cost pools andrelated cost drivers and accumulated overhead by cost pool asfollows.
| | | | | | | | 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 costof 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 ofthe activity-based overhead rates (per cost driver). (Round youranswers to 2 decimal places, e.g. 2.25.)
3.)Complete the schedule assigning each activity's overhead costpool to each product based on the use of cost drivers. (Use ratesfrom 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 slightlydifferent 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 ora 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
