Question

Combat Fire, Inc. manufactures steel cylinders and nones for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commerci fire extinguisher. The home model is a high-volume (54,000 units), half- on 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 PSL. 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)) Estimated annual manufacturing overhead is $1.583,096. Thus, the predetermined overhead race is $16.44 or (51.583,096 +96,300) per direct bor hour. The direct materiais cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labor costs $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 Estimated Use of Drivers by Product Activity Cost Pools Receiving Forming Asembling Testing Painting Packing and shipping Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Estimated Overhead $80,400 145,950 414 40 55,080 Estimated 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 8,000 52.000 10.000 63,096 824,100 120,000 $1,583,096 Under traditional product costing, compute the total cost of each product. (Round answers to 2 decimal places, .g. 12.50.) Home Model Commercial Model Total unit costs Under ABC, prepare a schedule showing the computations of the activity based overhead rates (per cost driver). (Round overhead rate to decimal places, s. 12.25.) Activity Cost Pool Estimated m Overhead ates Estimated Use of Cost Drivers pounds Activity-Based Overhead Rate per pound Receiving Machine hours per machine hou Forming Parts per part Assembling

Answer 1

Calculation of Unit Product Cost
Under Traditional Costing
	Home Model	Commercial
Direct Material	$18.50	$26.50
Direct Labor	$19.00	$19.00
Applied Overhead	$24.66	$24.66
Product Cost per Unit	$62.16	$70.16

Working Note-1 Computation of Overhead assigned each Unit
Overhead Assigned	Activity Driver ( in Hour) (A)	Predeterminde OH Rate (B)	tal Overhead Cost (c=AXB)	Units Produced (D)	OH Cost per Unit (C/D)
Home Model	81000	$16.44	$1,331,640.00	54000	$24.66
Commercial Model	15300	$16.44	$251,532.00	10200	$24.66

2. Computation of Activity Rate
ABC Costing
Activity	Overhead (A)	Cost Driver Quantity (B)		Allocation Rate A/B)
Receiving	$80,400.00	335000	Pounds	$0.24	Per Pounds
Forming	$145,950.00	35000	Machine Hour	$4.17	Per Machine Hour
Asembling	$414,470.00	217000	No. of Parts	$1.91	per No. of Parts
Testing	$55,080.00	25500	No. of Tests	$2.16	Per No. of Tests
Painting	$63,096.00	5258	Gallon	$12.00	PerGallon
Packing & Shipping	$824,100.00	335000	Pounds	$2.46	Per Pounds
tal	$1,583,096.00

3. Assigning Overhead Cost Product Model
Using ABC Method
			Home			Commercial
	Activity Based Overhead Rate (A)		Cost Driver Incurred (B)		OH Allocated (AXB)	Cost Driver Incurred ( C)		OH Allocated (AXC)
Receiving	$0.24	Per Pounds	215000	Per Pounds	$51,600.00	120000	Per Pounds	$28,800.00
Forming	$4.17	Per Machine Hour	27000	Per Machine Hour	$112,590.00	8000	Per Machine Hour	$33,360.00
Asembling	$1.91	per No. of Parts	165000	per No. of Parts	$315,150.00	52000	per No. of Parts	$99,320.00
Testing	$2.16	Per No. of Tests	15500	Per No. of Tests	$33,480.00	10000	Per No. of Tests	$21,600.00
Painting	$12.00	PerGallon	3680	PerGallon	$44,160.00	1578	PerGallon	$18,936.00
Packing & Shipping	$2.46	Per Pounds	215000	Per Pounds	$528,900.00	120000	Per Pounds	$295,200.00
tal Overhead					$1,085,880.00			$497,216.00
No. Of Units					54000			10200
Overhead per Unit					$20.11			$48.75

4. Calculation of Unit Product Cost
Under ABC Costing
	Home	Commercial
Direct Material	$18.50	$26.50
Direct Labor	$19.00	$19.00
Applied Overhead	$20.11	$48.75
Product Cost per Unit	$57.61	$94.25