Question

Problem 17-IA 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 (54,000 + 10,200)). Expected annual manufacturing overhead is $1,576,200. Thus, the predetermined overhead rate is $16.37 or ($1,576,200 +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 activih cost pools and related cost drivers and accumulated overhead by cost pool as follows: Expected Use of Drivers by Product Expected Use of Activity Cost Pools Cost Drivers Estimated Overhead Cost Drivers Home Commercial Receiving Pounds $86,600 335,000 215,000 120,000 Forming Machine hours 149,000 35,000 27,000 8,000 Assembling Number of parts 413,000 217,000 165,000 52,000 Testing Number of tests 47,000 25,500 15,500 10,000 Painting Gallons 58,600 5,258 3,680 1,578 Packing and shipping Pounds 822,000 335,000 215,000 120,000 $1,576,200 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

H M Total cost per unit 81000 Units Direct material Material cost Labour (1.5 hrs) Direct labour Labour cost Overhead cost Total cost Cost per unit Home Commercial 54000 10200 18.5 26.5 cost per unit 999000 270300 15300 hours 19 19 cost per unit 1539000 290700 1081303 494297 3619303 1055297 67.02 103.46 B с D F G 1 Activity Based Overhead rates 2 Cost pool Estimated Overhead Expected use ABC rate 3 Receiving 86000 335000 pounds 0.26 per pound 4 Forming 149000 35000 M.hrs 4.26 per m.hr 5 Assembling 413000 217000 Parts 1.90 per part 6 Testing 47000 25500 tests 1.84 per test 7 Painting 58600 5258 gallons 11.14 per gallon 8 Packing & shipping 822000 335000 pounds 2.45 per pound 9 1575600 10 11 Overhead cost pool 12 Home Model Commercial 13 Cost pool Expected use of drivers ABC rate Cost Expected use of drivers ABC rate Cost 14 Receiving 215000 0.26 55194.03 120000 0.26 30805.97 15 Forming 27000 4.26 114942.9 8000 4.26 34057.14 16 Assembling 165000 1.90 314032.3 52000 1.90 98967.74 17 Testing 15500 1.84 28568.63 10000 1.84 18431.37 18 Painting 3680 11.14 41013.31 1578 11.14 17586.69 19 Packing& shipping 215000 2.45 527552.2 120000 2.45 294447.8 20 Total cost assigned 1081303 494296.7 21 Units 54000 10200 22 Overhead cost per unit 20.02 48.46 23 Value added activities help in transforming a product while non value added activities do not Receiving Non value added Forming value added Assembling value added Testing Non value added Painting value added Packing& shipping value added