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P17-1A Assign overhead using traditional costing and ABC; compute unit costs; classify activities as value- or non-value-added Combat Fire, Inc. manufactures steel cylinders and nozzles
| P17-1A Assign overhead using traditional costing and ABC; compute unit costs; classify activities as value- or non-value-added | |||||||||||||||
| 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 x (54,000 + 10,200)]. Expected annual manufacturing | |||||||||||||||
| overhead is $1,584,280. Thus, the predetermined overhead rate is $16.45 or ($1,584,280 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 | Expected Use of | ||||||||||||||
| Estimated | Use of Cost | Drivers by Product | |||||||||||||
| Activity Cost Pools | Cost Drivers | Overhead | Drivers | Home | Commercial | ||||||||||
| Receiving | Pounds | $80,400 | 335,000 | 215,000 | 120,000 | ||||||||||
| Forming | Machine hours | 150,500 | 35,000 | 27,000 | 8,000 | ||||||||||
| Assembling | Number of parts | 412,300 | 217,000 | 165,000 | 52,000 | ||||||||||
| Testing | Number of tests | 51,000 | 25,500 | 15,500 | 10,000 | ||||||||||
| Painting | Gallons | 52,580 | 5,258 | 3,680 | 1,578 | ||||||||||
| Packing and shipping | Pounds | 837,500 | 335,000 | 215,000 | 120,000 | ||||||||||
| $1,584,280 | |||||||||||||||
| 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 Illustration 4-3 on page 5). | |||||||||||||||
| (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.) | |||||||||||||||
| (d) Compute the total cost per unit for each product under ABC. | |||||||||||||||
| (e) Classify each of the activities as a value-added activity or a non-value-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. | |||||||||||||||
| NOTE: Enter a number in cells requesting a value; enter either a number or a formula in cells with a "?" . | |||||||||||||||
| Products | |||||||||||||||
| (a) | Manufacturing Costs | Home Model | Commercial Model | ||||||||||||
| Direct materials | Value | Value | |||||||||||||
| Direct labor | Value | Value | |||||||||||||
| Overhead | Value | Value | |||||||||||||
| Total unit cost | ? | ? | |||||||||||||
| Expected Use of Drivers | |||||||||||||||
| Estimated | Expected Use of | = | Activity-Based | ||||||||||||
| (b) | Activity Cost Pool | Overhead | Cost Drivers | OH Rate | |||||||||||
| Receiving | Value | Value | Pounds | ? | |||||||||||
| Forming | Value | Value | MH | ? | |||||||||||
| Assembling | Value | Value | Parts | ? | |||||||||||
| Testing | Value | Value | Tests | ? | |||||||||||
| Painting | Value | Value | Gallons | ? | |||||||||||
| Packing and shipping | Value | Value | Pounds | ? | |||||||||||
| ? | |||||||||||||||
| (c) | Home Model | Commercial Model | |||||||||||||
| MH | x | Activity-Based | = | Cost | Expected Use | x | Activity-Based | = | Cost | ||||||
| Activity Cost Pool | of Drivers | OH Rates | Assigned | of Drivers | OH Rates | Assigned | |||||||||
| Receiving | Value | Value | ? | Value | Value | ? | |||||||||
| Forming | Value | Value | ? | Value | Value | ? | |||||||||
| Assembling | Value | Value | ? | Value | Value | ? | |||||||||
| Testing | Value | Value | ? | Value | Value | ? | |||||||||
| Painting | Value | Value | ? | Value | Value | ? | |||||||||
| Packing and shipping | Value | Value | ? | Value | Value | ? | |||||||||
| Total cost assigned (a) | ? | ? | |||||||||||||
| Units produced | Value | Value | |||||||||||||
| OH cost per unit (a) +(b) | ? | ? | |||||||||||||
| Home | Commercial | ||||||||||||||
| (d) | ABC Manufacturing Costs | Model | Model | ||||||||||||
| Direct materials | Value | Value | |||||||||||||
| Direct labor | Value | Value | |||||||||||||
| Overhead | Value | Value | |||||||||||||
| Total cost per unit | ? | ? | |||||||||||||
| (e ) | Activity | Value- vs. Non-Value-Added | |||||||||||||
| Receiving | classification | ||||||||||||||
| Forming | classification | ||||||||||||||
| Assembly | classification | ||||||||||||||
| Testing | classification | ||||||||||||||
| Painting | classification | ||||||||||||||
| Packing and shipping | classification | ||||||||||||||
| (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. | |||||||||||||||
| | |||||||||||||||
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1st Edition
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