Question

Excel AutoSave OD R File Home Insert E xcelTemplateAssignment Cho4 (5) Formulas Data Review View Search DYMO Label QuickBooks Page Layout Help 12 A1 . 1 X f PA-1A Assign overhead using traditional costing and ABC, compute unit costs, classify activities as value or non-value-ad 4. A B C D E F HI L 1 P4.1A Asign overhead using traditional costing and ABC: compute unit costs classily activities as value or non-value-added 2 Combat Fire, Inc, manufactures steel cylinders and nozzles for two models of fire extinguishers. (1) a home fire extinguisher 3 and (2) a commercial fire extinguisher. The home model is a high-volume (64,000 units), hall.gallon cylinder that holds 2 1/2 4 pounds of multi-purpose dry chemical at 480 PSI. The commercial model is a low-volume (10,200 units), two-gallon cylinder 5 that holds 10 pounds of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labor for completion 6 Therefore, total annual direct labor hours are 96,300 or (1.5 hours x (54,000 + 10,200). Expected annual manufacturing 7 overhead is $1,584,280. Thus, the predetermined overhead rate is $16.45 or ($1,584,280 -96,300) per direct labor hour. 8 The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor cost 9 is $19 per unit for both the home and the commercial models. 10 The company's managers Identified six activity cost pools and related cost drivers and accumulated overhead by cost pool 11 as follows Estimated Expected Use of Estimated Use of Cost Drivers by Product 14 Activity Cost Pools Cost Drivers Overhead Drivers Home Commercial 15 Receiving Pounds $80.400 335.000 215.000 120,000 16 Forming Machine hours 150,500 35,000 27,000 8,000 17 Assembling Number of parts 412,300 217,000 165,000 52,000 18 Testing Number of tests 51,000 25,500 15,500 10,000 19 Painting Gallons 52,580 5,258 3,680 1,678 20 Packing and shipping Pounds 637,500 335,000 215,000 120,000 51,684,280 22 23 Instructions 24 (0) Under traditional product costing compute the total unit cost of each product Prepare a simple comparative 25 schedule of the Individual costs by product (smlar toitlustration 4-3 on page 8). 26() Under ABO, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver 27 (c) Prepare a schedule ossigning each activitys overhead cost pool to each product based on the use of cost drivers. 20 (include a computation of overhead cost per unit, rounding to the nearest cent.) 29(d) Compute the total cost per unit for each product under ABO. (O) Classily each of the activites as a value-added activity or a non-value-added activity 310) Comment on (1) the comparative overhead cost per unit for the two products under ABO and (2) the comparative total costs per unit under vaditional costing and ABO. 32 34 NOTE: Enter a number in cells requesting a value; onter either a number or a formula in cells with a "?". 64- 14449 P4.1 P4-2A COULO ch

Answer 1

(a)		Products
	Manufacturing Costs	Home Model	Commerical Model
	Direct Material	18.50	26.50
	Direct Labour	19.00	19.00
	Overhead	24.68	24.68
	Total unit cost	62.18	70.18

(b)	Activity Cost Pool	Estimated Overhead (A)	Expected use of Cost Drivers (B)		Activity based OH rate (A/B)
	Receiving	80,400	335000	Pounds	0.24
	Forming	150,500	35000	MH	4.30
	Assembling	412,300	217000	Parts	1.90
	Testing	51,000	25500	Tests	2.00
	Painting	52,580	5258	Gallons	10.00
	Packing & shipping	837,500	335000	Pounds	2.50
		1,584,280

Home Model					Commercial Model
Activity Cost Pool	Expected use of Cost Drivers (B)	Activity based OH rate (B)	Cost Assigned (A*B)		Activity Cost Pool	Expected use of Cost Drivers (B)	Activity based OH rate (B)	Cost Assigned (A*B)
Receiving	215,000	0.24	51,600		Receiving	120,000	0.24	28,800
Forming	27,000	4.30	116,100		Forming	8,000	4.30	34,400
Assembling	165,000	1.90	313,500		Assembling	52,000	1.90	98,800
Testing	16,500	2.00	33,000		Testing	10,000	2.00	20,000
Painting	3,680	10.00	36,800		Painting	1,578	10.00	15,780
Packing & shipping	215,000	2.50	537,500		Packing & shipping	120,000	2.50	300,000
Total Costs Assigned (a)			1,088,500		Total Costs Assigned (a)			497,780
Units produced (b)			54,000		Units produced (b)			10,200
OH cost per unit (a/b)			20		OH cost per unit (a/b)			49

(d)	ABC Manufacturing Costs	Home Model	Commercial Model
	Direct Material	18.50	26.50
	Direct Labour	19.00	19.00
	Overhead	20.16	48.80
	Total unit cost	57.66	94.30

(e)	Activity	Value vs Non-value Added
	Receiving	Non Value Added
	Forming	Value Added
	Assembly	Value Added
	Testing	Value Added
	Painting	Value Added
	Packing & Shipping	Value Added

(f)	Comments - Traditional vs ABC

Under Traditional, there isnt any significant difference in Cost per unit because it doesn’t take into account the non unit level overhead costs. Hence, it results in inaccurate product costing. On the other hand, ABC provides accurate product costing because it takes into account the non unit level overhead costs. Even though volume of Commerical Model is lesser than that of Home Model, the costs assigned to the activities is significant and hence provides more meaningful data for comparison.

Redoing :

(a) Answer under Traditional costing would remain the same.

(b)							(c) Home Model					(c)Commercial Model
Activity Cost Pool	Estimated Overhead (A)	Expected use of Cost Drivers (B)		Activity based OH rate (A/B)			Activity Cost Pool	Expected use of Cost Drivers (B)	Activity based OH rate (B)	Cost Assigned (A*B)		Activity Cost Pool	Expected use of Cost Drivers (B)	Activity based OH rate (B)	Cost Assigned (A*B)
Receiving	110,400	335000	Pounds	0.33			Receiving	215,000	0.33	70,854		Receiving	120,000	0.33	39,546
Forming	150,500	35000	MH	4.30			Forming	27,000	4.30	116,100		Forming	8,000	4.30	34,400
Assembling	425,000	217000	Parts	1.96			Assembling	165,000	1.96	323,157		Assembling	52,000	1.96	101,843
Testing	51,000	25500	Tests	2.00			Testing	16,500	2.00	33,000		Testing	10,000	2.00	20,000
Painting	72,600	5258	Gallons	13.81			Painting	3,680	13.81	50,812		Painting	1,578	13.81	21,788
Packing & shipping	837,500	335000	Pounds	2.50			Packing & shipping	215,000	2.50	537,500		Packing & shipping	120,000	2.50	300,000
	1,647,000						Total Costs Assigned (a)			1,131,422		Total Costs Assigned (a)			517,578
							Units produced (b)			54,000		Units produced (b)			10,200
							OH cost per unit (a/b)			21		OH cost per unit (a/b)			51