Question

Problem 5-35A FireOut, 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-litre cylinder that holds 2.50 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.50 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 or [1.50 hrs. x (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 or ($1,502,280 = 96,300) per direct labour hour. The direct materials cost per unit is $18.78 for the home model and $26.20 for the commercial model. The direct labour cost is $20.00 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 Overhead Activity Cost Pools Cost Drivers Receiving Kilograms Forming Machine hours Assembling Number of parts Testing Number of tests Painting Litres Packing and shipping Kilograms $70,610 151,200 391,100 51,700 54,110 783,560 $1,502,280 Expected Use Expected Use of Cost Drivers of Drivers by Product Home Commercial 335,200 215,000 120,200 36,500 28,000 8,500 219,000 166,000 53,000 26,900 16,000 10,900 6,520 4,220 2,300 335,200 215,000 120,200
Please show your calculations!

Answer 1

Total unit cost Manufacturing costs Direct material Direct labor Total Overhead allocated Total unit cost Products Home Commercial $18.78 $26.20 $20.00 $20.00 $23.40 $23.40 (1.50 labor hour * $15.60) $62.18 $69.60 Calculation of Activity rates Cost Pool Activity rate cost drivers Receiving Forming Assembly Testing Painting Packing and shipping Total Overheads Estimated Overheads $70,6101 $151,200 $391,100 $51,700 $54,110 $783,560 $1,502,280 Total Activities 335,200 36,500 219,000 26,900 6,5201 335, 2001 $0.21 per kilogram $4.14 per machine hour $1.79 per part $1.92 per test $8.30 per litre $2.34 per kilogram Allocation of Overheads - ABC method Activity Activity rate Receiving-kilograms Forming- machine hours Assembly- number of parts Testing-number of tests Painting- litres Packing and shipping-kilograms Total Overheads $0.21 $4.14 $1.79 $1.92 $8.301 $2.34 Activities used Home Commercial 215,000 120,200 28,000 8,500 166,000 53,000 16,000 10,900 4,220 2,300 215,000 120,200 Allocated Cost Home Commercial $45,290 $25,320 $115,989 $35,211 $296,450 $94,650 $30,751 $20,949 $35,022 $19,088 $502,5821 $280,978 $1,026,084) $476,196 Total cost Activity based overhead applied Receiving-kilograms Forming- machine hours Assembly-number of parts Testing-number of tests Painting- litres Packing and shipping-kilograms Total manufacturing cost per unit Total units produced Per unit overhead cost Home $45,290 $115,989 $296,450 $30,751 $35,022 $502,582 $1,026,084 54,000 $19.00 Commercial $25,320 $35,211 $94,650 $20,949 $19,088 $280,978 $476,1961 10,200 $46.69 Total unit cost - ABC method Manufacturing costs Direct material Direct labor Total Overhead allocated Total unit cost Home $18.78 $20.00 $19.00 $57.78 Commercial $26.20 $20.00 $46.69 $92.89 ABC method Products Home Commercial $57.78 $92.89 Per unit cost Classification Receiving Forming Assembly Testing Painting Packing and shipping Non-value adding Value adding Value adding Non-value adding Value adding Value adding