Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fir
ID: 2330045 • Letter: C
Question
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.S 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 $1,583,096. Thus, the predetermined overhead rate is $16.44 or ($1,583,096 ÷ 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 Usce of Cost Drivers Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and shipping Cost DriversEstimated Overhead Pounds Machine hours Number of parts Number of tests Gallons Pounds Home Commercial 145,950 414,470 55,080 63,096 824,100 S1,583,096 335,000 215,000 35,000 27,000 217,000 165,000 25,500 15,500 5,258 3,680 335,000 215,000 120,000 8,000 52,000 10,000 1,578 120,000 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.) 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 Receiving Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rate Pounds per pound Forming Assembling Testing Painting Packing and shipping Machine hours per machine hour Parts per part Tests per test Gallons per gallon Pounds per poundExplanation / Answer
(a) Traditional Costing :-
Home Model
Commercial Model
Direct Materials
18.50
26.50
Direct Labour
19
19
Overhead
24.66*
24.66*
Total Unit Cost
62.16
70.16
*16.44 X 1.5 = 24.66
(b) ABC Costing :-
Activity Cost Pools
Estimated Overhead
Estimated Use of Cost Drivers
Activity Based O/H Rate
Receiving
80400
335000
0.24 per KG
Forming
145950
35000
4.17 per mc hr
Assembling
414470
217000
1.91 per part
Testing
55080
25500
2.16 per test
Painting
63096
5258
12 per litre
Packaging & Shipping
824100
335000
2.46 per Kg
1583096
Home Model
Commercial Model
Activity Cost Pools
Estimated Use of Cost Drivers
Activity Based O/H Rate
Cost Assigned
Estimated Use of Cost Drivers
Activity Based O/H Rate
Cost Assigned
Receiving
215000
0.24 per KG
51600
120000
0.24 per KG
28800
Forming
27000
4.17 per m/c hr
112590
8000
4.17 per m/c hr
33360
Assembling
165000
1.91 per part
315150
52000
1.91 per part
99320
Testing
15500
2.16 per test
33480
10000
2.16 per test
21600
Painting
3680
12 per litre
44160
1578
12 per litre
18936
Packaging & Shipping
215000
2.46 per Kg
528900
120000
2.46 per Kg
295200
Total Cost assigned (a)
1085880
497216
Unit Produced (b)
54000
10200
Overhead cost per unit
(a/b)
20.11
48.75
Total cost per unit (ABC) :-
Home Model
Commercial Model
Direct Materials
18.50
26.50
Direct Labour
19
19
Overhead
20.11
48.75
Total Unit Cost
57.61
94.25
Classification of Actvities :-
Receiving
Non Value Added
Forming
Value Added
Assembling
Value Added
Testing
Non Value Added
Painting
Value Added
Packaging & Shipping
Value Added
Home Model
Commercial Model
Direct Materials
18.50
26.50
Direct Labour
19
19
Overhead
24.66*
24.66*
Total Unit Cost
62.16
70.16