Problem 17-1A

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)]. Expected annual manufacturing overhead is $1,580,700. Thus, the predetermined overhead rate is $16.41 or ($1,580,700 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.

								Expected Use of Drivers by Product
Activity Cost Pools		Cost Drivers		Estimated Overhead		Expected Use of Cost Drivers		Home		Commercial
Receiving		Pounds		$81,600		335,000		215,000		120,000
Forming		Machine hours		151,000		35,000		27,000		8,000
Assembling		Number of parts		415,000		217,000		165,000		52,000
Testing		Number of tests		52,000		25,500		15,500		10,000
Painting		Gallons		53,100		5,258		3,680		1,578
Packing and shipping		Pounds		828,000		335,000		215,000		120,000
				$1,580,700

The companys managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows:

a) Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.)

b) Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver). (Round overhead rate to 2 decimal places, e.g. 12.25.)

c) Prepare a schedule assigning each activitys overhead cost pool to each product based on the use of cost drivers. (Round overhead cost per unit to 2 decimal places, e.g. 12.25 and cost assigned to 0 decimal places, e.g. 2,500.)

D) Compute the total cost per unit for each product under ABC. (Round answer to 2 decimal places, e.g. 12.25.)

e) Classify each of the activities as a value-added activity or a nonvalue-added activity