Question

Problem 18-1A 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 x (54,000 10,200)]. Expected annual manufacturing overhead is $1,562,738. Thus, the predetermined overhead rate is $16.23 or ($1,562,738 ÷ 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 Expected Use of Cost Drivers Activity Cost PoolsCost Drivers Receiving Forming Assembling Testing Painting Packing and shipping Estimated Overhead Home Commercial Pounds Machine hours Number of parts Number of tests Gallons Pounds $93,800 143,500 368,900 61,200 57,838 837,500 $1,562,738 335,000 215,000 35,000 27,000 217,000 165,000 25,500 15,500 3,680 335,000 215,000 120,000 8,000 52,000 10,000 1,578 120,000 5,258 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.) Home Model Commercial Model Total unit cost

Answer 1

Solution 1:

Computation of unit cost of each product - Traditional costing - Combat Fire Inc.
Particulars	Home Fire Extinguisher	Commercial Fire Extenguisher
Direct material	$18.50	$26.50
Direct labor	$19.00	$19.00
Manufacturing overhead	$24.35	$24.35
Unit Product Cost	$61.85	$69.85

Solution 2:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Receiving	$93,800.00	Pounds	335000	$0.28
Forming	$143,500.00	Machine hours	35000	$4.10
Assembling	$368,900.00	Nos of parts	217000	$1.70
Testing	$61,200.00	Nos of tests	25500	$2.40
Painting	$57,838.00	Gallon	5258	$11.00
Packing and shipping	$837,500.00	Pounds	335000	$2.50
Total	$1,562,738.00

Allocation of overhead and computation of overhead cost per unit
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Home		Commercial
					Usage	Allocated Costs	Usage	Allocated Costs
Receiving	$93,800.00	Pounds	335000	$0.28	215000	$60,200.00	120000	$33,600.00
Forming	$143,500.00	Machine hours	35000	$4.10	27000	$110,700.00	8000	$32,800.00
Assembling	$368,900.00	Nos of parts	217000	$1.70	165000	$280,500.00	52000	$88,400.00
Testing	$61,200.00	Nos of tests	25500	$2.40	15500	$37,200.00	10000	$24,000.00
Painting	$57,838.00	Gallon	5258	$11.00	3680	$40,480.00	1578	$17,358.00
Packing and shipping	$837,500.00	Pounds	335000	$2.50	215000	$537,500.00	120000	$300,000.00
Total	$1,562,738.00					$1,066,580.00		$496,158.00
Nos of units						54000		10200
Overhead cost per unit						$19.75		$48.64

Computation of unit cost of each product - Activity Based costing - Combat Fire Inc.
Particulars	Home Fire Extinguisher	Commercial Fire Extenguisher
Direct material	$18.50	$26.50
Direct labor	$19.00	$19.00
Manufacturing overhead	$19.75	$48.64
Unit Product Cost	$57.25	$94.14