Question

Problem 3-2A 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 11.5 hours x (54,000 + 10,200)). Estimated annual manufacturing overhead is $1,576,578. Thus, the predetermined overhead rate is $16.37 or ($1,576,578 -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 Estimated Use of Activity Cost Pools Cost Drivers Estimated Overhead Cost Drivers Home Commercial S750 235.000 215.000 120000 35.000 27.000 412 300 217.0ool 165.000 47 90 57 . Under traditional product costing, compute the total unit cost of each product. Show work. Home model Commercial Total Unit cost Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). Activity Cost Pool Estimated Estimated Use of Cost vers Activity-based Overhead Rate Receiving Forming Assembling Testing Parong Packing and Shin Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers.

Answer 1

a Calculations of unit cost under traditional method. Direct Material Direct Labor Overhead cost ($ 16.37 x 1.5 hr) Total Unit Cost Home Model 18.50 19.00 24.56 62.06 Commercial Model $ 26.50 Given $ 19.00 Given $ 24.56 Predetermined overhead rate x direct labor hour used $ 70.06 $ Schedule Showing computation of activity based overhead rates (per cost driver). Activity based overhead rate = Estimated Overhead / Expected use of cost driver Expected use of cost driver Estimated Overhead Activity based overhead rate Activity cost pool Receiving Forming Assembling Testing Painting Packaging & Shipping 83,750 154,000 412,300 47,940 57,838 820,750 1,576,578 335000 Pounds 35000 Machine hour 217000 Parts 25500 Tests 5258 Gallons 335000 Pounds 0.25 Per Pound 4.40 Per Machine Hour 1.90 Per Parts 1.88 Per Test 11.00 Per Gallon 2.45 Per Pound Schedule showing assigning of each product based on the use of cost driver Cost Assigned = Expected Cost driver x Activity based overhead rate Activity cost pool Receiving Forming Assembling Testing Painting Packaging & Shipping Home Model Activity based Expected Cost driver overhead rate Cost Assigned 215000 $ 0.25 $ 53,750 27000 $ 4.40 $ 118,800 165000 $ 1.90 $ 313,500 15500 $ 1.88 $ 29,140 3680 $ 11.00 $ 40,480 215000 $ 2.45 $ 526,750 Commercial Model Expected Cost Activity based driver overhead rate 120000 $ 0.25 8000 $ 4.40 52000 $ 1.90 10000 1.88 1578 $ 11.00 120000 $ 2.45 Cost Assigned $ 30,000 $ 35,200 $ 98,800 $ 18,800 $ 17,358 $ 294,000 $ $ Total Cost Assigned Units Produced Overhead Cost Per Unit (a) (6) (a)/(6) L 1,082,420 54000 20.04 494,158 10200 48.45 $ $ Total cost per unit under ABC method: Direct Material Direct Labor Overhead cost Total Unit Cost Home Model Commercial Model 18.50 $ 26.50 19.00 $ 19.00 20.04 $ 48.45 57.54 $ 93.95