Question
FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. Thehome
FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher. Thehome modelis a high-volume (54,000 units), half-gallon cylinder that holds 2 1/2 pounds of multi-purpose dry chemical at 480 PSI. Thecommercial modelis 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. Expected annual manufacturing overhead is $1,557,480. Thus, the predetermined overhead rate is $16.17 orper 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.
|
Instructions
(a) | Under traditional product costing, compute the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration18-10). (a) Unit costH.M. $61.76 |
(b) | Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). |
(c) | Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.) (c) Cost assignedH.M. $1,069,300 |
(d) | Compute the total cost per unit for each product under ABC. (d) Cost/unitH.M. $57.30 |
(e) | Classify each of the activities as a value-added activity or a nonvalue-added activity. |
(f) | Comment on (1) the comparative overhead cost per unit for the two products under ABC, and (2) the comparative total costs per unit under traditional costing and ABC. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started