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.
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)]. Estimated annual manufacturing overhead is $1,574,008. Thus, the predetermined overhead rate is $16.34 or ($1,574,008 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 companys managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.
| Estimated Use of Drivers by Product | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Activity Cost Pools | Cost Drivers | Estimated Overhead | Estimated Use of Cost Drivers | Home | Commercial | |||||
| Receiving | Pounds | $87,100 | 335,000 | 215,000 | 120,000 | |||||
| Forming | Machine hours | 149,100 | 35,000 | 27,000 | 8,000 | |||||
| Assembling | Number of parts | 412,300 | 217,000 | 165,000 | 52,000 | |||||
| Testing | Number of tests | 46,920 | 25,500 | 15,500 | 10,000 | |||||
| Painting | Gallons | 57,838 | 5,258 | 3,680 | 1,578 | |||||
| Packing and shipping | Pounds | 820,750 | 335,000 | 215,000 | 120,000 | |||||
| $1,574,008 | ||||||||||
Classify each of the activities as a value-added activity or a nonvalue-added activity.
| Activity | ||
|---|---|---|
| Receiving | select between value added and non-value added Value-addedNon-value-added | |
| Forming | select between value added and non-value added Non-value-addedValue-added | |
| Assembling | select between value added and non-value added Non-value-addedValue-added | |
| Testing | select between value added and non-value added Value-addedNon-value-added | |
| Painting | select between value added and non-value added Value-addedNon-value-added | |
| Packing and shipping | select between value added and non-value added Non-value-addedValue-added |
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Financial Accounting An International Introduction
Authors: David Alexander, Prof Christopher Nobes, Chris W. Nobes
4th Edition
027372164X, 978-0273721642
