Question

1. 
   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)]. Estimated annual manufacturing overhead is $1,585,378. Thus, the predetermined overhead rate is $16.46 or ($1,585,378 = 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. Estimated Use of Drivers by Product Cost Drivers Pounds Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and shipping Machine hours Number of parts Number of tests Estimated Overhead $87,100 155,050 407,960 49,980 57,838 827,450 $1,585,378 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 Gallons 1,578 Pounds 120,000
   What is the Total Unit Cost for Home & Commercial Model?
2. Prepare a schedule showing the computations of the activity-based overhead rates (per cost driver)
3. What is the total cost per unit of Direct Materials, Direct Labor, and Overhead for Home & Commercial Models?
4. Classify each of the activities as a value-added activity or a non-value-added activity.                                                      Receiving, Forming, Assembling, Testing, Painting, Painting& Shipping

Answer 1

A Traditional Method Home Model Commercial Model 61.92 $ 69.92 Total unit cost $ * Direct Material Direct Labor Overhead Total Costs $ $ $ $ Home Model Commercial Model 18.50 $ 26.50 19.00 $ 19.00 24.69 $ 24.69 62.19 $ 70.19 $16.46 per DLH Plantwide overhead rate Total Overhead cost Total Volume * Overhead: $1,585,378 $96,300 [$16.46*1.5 hrs] =$24.42: B Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and Shipping Estimated OH Cost $ 87,100 $ 155,050 $ 407,960 $ 49,980 $ 57,838 $ 827,450 $ 1,585,378 Expected use of Activity level 335,000 Pounds 35,000 Machine Hours $ 217,000 Number of parts $ 25,500 Number of tests $ 5,258 Gallons $ 335,000 Pounds $ Activity Based OH Rate 0.26 Per Pound 4.43 Per Machine Hours 1.88 Per Parts 1.96 Per Tests 11.00 Per Gallon 2.47 Per Pound $

Home Model Commercial Model Estimated Use of Activity-Based Estimated Use of Activity-Based OH Cost Cost Assigned Drivers OH Rate Drivers Rate Assigned Activity Cost Pools Receiving 215,000 0.26 $ 55,900 120,000 0.26 $ 31,200 Forming 27,000 4.43 $ 119,610 8,000 4.43 $ 35,440 Assembling 165,000 1.88 $ 310,200 52,000 1.88 $ 97,760 Testing 15,500 1.96 $ 30,380 10,000 1.96 $ 19,600 Painting 3,680 11.00 $ 40,480 1,578 11.00 $ 17,358 Packing and Shipping 215,000 2.47 $ 531,050 120,000 2.47 $ 296,400 Total Costs assigned(a) $ 1,087,620 $ 497,758 Units Produced (6) 54,000 10,200 Overhead Cost per unit[(a)*(b)] $ 20.14 $ 48.80 $ С Direct Material Direct Labor Overhead Cost - ABC Total Cost per unit $ $ $ $ Home Model Commercial Model 18.50 $ 26.50 19.00 $ 19.00 20.14 $ 48.80 57.64 $ 94.30 D Classify each of the activity: Activity Receiving Forming Assembling Testing Painting Packing and Shipping Non-Value-added activity Value-added activity Value-added activity Non-Value-added activity Value-added activity Value-added activity

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