P5-35A (LO 1, 2, 3) Excel FireOut Inc. manufactures steel cylinders and nozzles for two models...

Transcribed Image Text:

P5-35A (LO 1, 2, 3) Excel FireOut 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-litre cylinder that holds 2.5 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 [1.5 hrs. x (54,000 + 10,200)]. Estimated annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 ($1,502,280 96,300) per direct labour hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labour cost is $19 per unit for both the home and commercial models. The company's managers identified six activity cost pools and related cost drivers, and estimated overhead by cost pool as follows: Use of Drivers by Product Activity Cost Pools Receiving Cost Drivers Kilograms Estimated Overhead Estimated Use of Cost Drivers Home Commercial $ 70,350 335,000 215,000 120,000 Forming Machine hours 150,500 35,000 27,000 8,000 Assembling Number of parts 390,600 217,000 165,000 52,000 Testing Number of tests 51,000 25,500 15,500 10,000 Painting Litres 52,580 5,258 3,680 1,578 Packing and shipping Kilograms 787,250 335,000 215,000 120,000 $1,502,280 Instructions a. Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 5.4). a. Unit cost-Home model: $60.90 b. Under ABC, prepare a schedule showing the calculations 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 calculation of overhead cost per unit, rounding to the nearest cent.) c. Cost assigned-Home model: $1,031,300 d. Calculate the total cost per unit for each product under ABC. d. Cost/unit-Home model: $56.60 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. P5-35A (LO 1, 2, 3) Excel FireOut 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-litre cylinder that holds 2.5 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.5 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 [1.5 hrs. x (54,000 + 10,200)]. Estimated annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 ($1,502,280 96,300) per direct labour hour. The direct materials cost per unit is $18.50 for the home model and $26.50 for the commercial model. The direct labour cost is $19 per unit for both the home and commercial models. The company's managers identified six activity cost pools and related cost drivers, and estimated overhead by cost pool as follows: Use of Drivers by Product Activity Cost Pools Receiving Cost Drivers Kilograms Estimated Overhead Estimated Use of Cost Drivers Home Commercial $ 70,350 335,000 215,000 120,000 Forming Machine hours 150,500 35,000 27,000 8,000 Assembling Number of parts 390,600 217,000 165,000 52,000 Testing Number of tests 51,000 25,500 15,500 10,000 Painting Litres 52,580 5,258 3,680 1,578 Packing and shipping Kilograms 787,250 335,000 215,000 120,000 $1,502,280 Instructions a. Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product (similar to Illustration 5.4). a. Unit cost-Home model: $60.90 b. Under ABC, prepare a schedule showing the calculations 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 calculation of overhead cost per unit, rounding to the nearest cent.) c. Cost assigned-Home model: $1,031,300 d. Calculate the total cost per unit for each product under ABC. d. Cost/unit-Home model: $56.60 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.