Question

Problem 17-1A 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 × (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,578,800. Thus, the predetermined overhead rate is $16.39 or ($1,578,800 ÷ 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 Activity Cost Pools Cost Drivers Estimated Overhead Expected Use of Cost Drivers Home Commercial Receiving Pounds $87,800 335,000 215,000 120,000 Forming Machine hours 154,000 35,000 27,000 8,000 Assembling Number of parts 407,000 217,000 165,000 52,000 Testing Number of tests 45,000 25,500 15,500 10,000 Painting Gallons 61,000 5,258 3,680 1,578 Packing and shipping Pounds 824,000 335,000 215,000 120,000 $1,578,800 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 $ $ Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.) Activity Cost Pool Estimated Overhead Expected Use of Cost Drivers Activity-Based Overhead Rate Receiving $ Pounds $ per pound Forming Machine hours $ per machine hour Assembling Parts $ per part Testing Tests $ per test Painting Gallons $ per gallon Packing and shipping Pounds $ per pound $ Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Round overhead cost per unit to 2 decimal places, e.g. 12.25 and cost assigned to 0 decimal places, e.g. 2,500.) Home Model Commercial Model Activity Cost Pool Expected Use of Drivers Activity-Based Overhead Rates Cost Assigned Expected Use of Drivers Activity-Based Overhead Rates Cost Assigned Receiving $ $ $ $ Forming $ $ Assembling $ $ Testing $ $ Painting $ $ Packing and shipping $ $ Total costs assigned (a) $ $ Units produced (b) Overhead cost per unit [(a) ÷ (b)] $ $ Compute the total cost per unit for each product under ABC. (Round answer to 2 decimal places, e.g. 12.25.) Home Model Commercial Model Total cost per unit $ $ Classify each of the activities as a value-added activity or a non–value-added activity. Activity Receiving Forming Assembling Testing Painting Packing and shipping

Answer 1

		Home		Commercial
		Model		model
total unit cost		62.09		70.09	answer
materials		18.50		26.50
direct labor		19.00		19.00
overhead (16.39*1.5)		24.59		24.59
total unit cost		62.09		70.09
(please check direct labor cost per unit since it has been cut off and make changes if different)
		Estimated	expected	activity based overhead
Activity cost pool		overhead	drivers	rate
Receiving		87,800	335,000	0.26	per pound
Forming		154,000	35,000	4.4	per machine hour
Assembling		407,000	217,000	1.88	per part
Testing		45,000	25,500	1.76	per test
Painting		61,000	5,258	11.60	per gallon
packing & shipping		824,000	335,000	2.46	per pound
		1,578,800
		Home Model			Commercial model
Activity cost pool		expected use	oh rate	cost assigned	expected use	oh rate	cost assigned
Receiving		215,000	0.26	56349	120,000	0.26	31451
Forming		27,000	4.4	118800	8000	4.4	35200
Assembling		165,000	1.88	309470	52000	1.88	97530
Testing		15,500	1.76	27353	10,000	1.76	17647
Painting		3,680	11.60	42693	1,578	11.60	18307
packing & shipping		215,000	2.46	528836	120,000	2.46	295164
total costs assigned				1083501			495299
units produced				54,000			10,200
overhead cost per unit				20.06			48.56
			home	Commercial
total cost per unit			57.56	94.06
Activity
Receiving			non value added
Forming			value added
Assembling			value added
Testing			non value added
Painting			value added
packing & shipping			value added