Question

Combat Fire, Inc. manufactures steel cylinders and norzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. The hame mode is a high-volume (54,0DD units), half-gallon cylinder that halds 2 12 pounds of multi purpose dry chemical at 480 P5I. The commercial model is a low-volume (10,200 units), two-gallon cylinder that holds 10 pounds of multi-purpose dry chemical at 390 PS. 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 Expected annual manufacturing overhead is $1,572,700. Thus, the predetermined overhead ate is s16.33 or $1,572,700 ÷ 96,300) per direct labor hour. The direct materials cost per unit is s18 50 for the home model and $25.50 for the commercial model. The direct labor cost is $19 per unit for both the home and the commercial models. The company's managers identifind six activity cost paols and related cost drivers and accumulated overhead by cast pool as fallows: Expected Use of Drivers by Product Expected Use of Cost Drivers Activity Cost Pools Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Estimated Overhead Home Commercial 120,000 9,000 52,00D Forming Assembling Testing Pairting Packing and shipping $87,900 150,000 400,D00 49,000 ,800 030,000 1,572,700 335,000 215,000 35,000 27,000 217,00D 1000 25,500 15,500 5,758 3,80 335,000 215,000 1,978 under traditional product costing·compute the tatal unit cost of each product. (Roundanewers to decimal places, e g. 12.25.) Home Model Commercial Model Total unit cost

Answer 1

Solution:

Computation of unit cost of each product - Traditional costing - Combat Fire Inc.
Particulars	Home Model	Commercial Model
Direct material	$18.50	$26.50
Direct labor	$19.00	$19.00
Manufacturing overhead	$24.50	$24.50
Unit Product Cost	$62.00	$70.00

Determination of activity rate for each activity
Activity cost pool	Estimated Overhead Cost	Expected use of cost drivers		Overhead Rate
					Receiving	$87,900.00	335000	Pounds	$0.26
Forming	$1,50,000.00	35000	Machine hours	$4.29
Assembling	$4,00,000.00	217000	parts	$1.84
Testing	$48,000.00	25500	tests	$1.88
Painting	$56,800.00	5258	Gallon	$10.80
Packing and shipping	$8,30,000.00	335000	Pounds	$2.48
Total	$15,72,700.00

Allocation of overhead and computation of overhead cost per unit
Activity cost pool	Home Model			Commercial Model
	Expected use of Drivers	Overehad rates	Cost Assigned	Expected use of Drivers	Overehad rates	Cost Assigned
Receiving	215000	0.26	$55,900	120000	0.26	$31,200
Forming	27000	4.29	$1,15,830	8000	4.29	$34,320
Assembling	165000	1.84	$3,03,600	52000	1.84	$95,680
Testing	15500	1.88	$29,140	10000	1.88	$18,800
Painting	3680	10.8	$39,744	1578	10.8	$17,042
Packing and shipping	215000	2.48	$5,33,200	120000	2.48	$2,97,600
Total			$10,77,414			$4,94,642
Nos of units			54000			10200
Overhead cost per unit			$19.95			$48.49

Computation of unit cost of each product - Activity Based costing - Combat Fire Inc.
Particulars	Home Model	Commercial Model
Direct material	$18.50	$26.50
Direct labor	$19.00	$19.00
Manufacturing overhead	$19.95	$48.49
Unit Product Cost	$57.45	$93.99

Activity	Classification
Receiving	Non value added activity
Forming	Value added activity
Assembling	Value added activity
Testing	Non value added activity
Painting	Value added activity
Packing and shipping	Value added activity