Question

Problem 17-1A (Part Level Submission) 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: 1 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 completi Therefore, total annual direct labor hours are 96,300 or (1.5 hours x (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,577,300. Thus, the predetermined overhead rate is $16.38 or ($1,577,300 +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 Receiving Forming Assembling Testing Painting Packing and shipping Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Estimated Overhead $84,400 153,000 407,000 54,000 57,900 821,000 $1,577,300 Expected Use of Cost Drivers 335,000 35,000 217,000 25,500 5,258 335,000 Home 215,000 27,000 165,000 15,500 3,680 215,000 Commercial 120,000 3,000 52.000 10,000 1.578 120,000

Answer 1

Under traditional product costing, compute the total unit cost of each product. Home Model Commercial Model Total unit cost $62.07 $70.07 Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). Estimated Activity Cost Pool Expected Use of Cost Drivers Overhead Activity-Based Overhead Rate Receiving $84.400 335,000 pounds $0.25 per pound Forming Assembling Testing Painting Packing and shipping 153,000 407,000 54,000 57,900 821,000 35,000 Machine hours 217,000 Parts 25,500 Tests 5,258 Gallons 335,000 Pounds 4.37 per machine hour 1.88 per part 2.12 per test 11.01 per gallon 2.45 per pound

Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. Home Model Commercial Model Activity Cost Pool Expected Use of Activity-Based Cost Assigned Expected Use of Activity-Based Cost Assigned Drivers Overhead Rates Drivers Overhead Rates Receiving 215,000 $0.25 $53,750 120,000 $0.25 $30,000 Forming 27,000 4.37 117,990 8,000 4.37 34,960 Assembling 165,000 1.88 310,200 52,000 97,760 Testing 15,500 2.12 32,860 10,000 21,200 Painting 3,680 11.01 40,517 1,578 11.01 17.374 Packing and shipping 2.45 526,750 120,000 2.45 294,000 Total costs assigned (a) $1,082,067 $495,294 Units produced (b) 54,000 10,200 Overhead cost per unit [(a) = (b)] $20.04 $48.56 1.88 2.12 Compute the total cost per unit for each product under ABC. Home Model Commercial Model Total cost per unit $57.54 $94.06

Classify each of the activities as a value-added activity or a non-value-added activity. Activity Receiving Non-value-added Forming Value-added Assembling Value-added Testing Non-value-added Painting Value-added Packing and shipping Value-added Explanation: Under traditional product costing, compute the total unit cost of each product. Products Home Model Commercial Model Direct materials $18.50 $26.50 Direct labor 19.00 19.00 Overhead ($16.38 * 1.5 hours) 24.57 24.57 Total unit cost $62.07 $70.07

Compute the total cost per unit for each product under ABC. Products Home Model Commercial Model Direct materials $18.50 $26.50 Direct labor 19.00 19.00 Overhead 20.04 48.56 Total unit cost $57.54 $94.06