P4-1 FireOut, Inc. manufactures steel cylinders and nozzles for two models of fi re extinguishers: (1) a home fi re extinguisher and (2) a commercial fi re 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 hrs. 3 (54,000 1 10,200)]. Expected annual manufacturing overhead is $1,557,480. Thus, the predetermined overhead rate is $16.17 or ($1,557,480 4 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 identifi ed 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 Illustration 4-10 on page 152). (b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (c) Prepare a schedule assigning each activitys 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 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.

Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and shipping Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Estimated Overhead $ 70,350 150,500 412,300 51,000 52,580 820,750 $1,557,480 Expected Use of Cost Drivers 335,000 35,000 217,000 25,500 5,258 335,000 Expected Use of Drivers by Product Home Commercial 215,000 120,000 27,000 8,000 165,000 52,000 15,500 10,000 3,680 1,578 215,000 120,000