Problem 4-1A a-e (Video)

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)]. Estimated annual manufacturing overhead is $1,567,870. Thus, the predetermined overhead rate is $16.28 or ($1,567,870 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 identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows.

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.)

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

		Home Model		Commercial Model
Total cost per unit		$		$

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

Activity
Receiving		Value-addedNon-value-added
Forming		Value-addedNon-value-added
Assembling		Non-value-addedValue-added
Testing		Value-addedNon-value-added
Painting		Non-value-addedValue-added
Packing and shipping		Value-addedNon-value-added

Estimated Use of Drivers by Product 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 $83,750 152,950 401,450 53,040 52,580 824,100 $1,567,870 Estimated Use of Cost Drivers 335,000 35,000 217,000 25,500 5,258 335,000 Home 215,000 27,000 165,000 15,500 3,680 215,000 Commercial 120,000 8,000 52,000 10,000 1,578 120,000 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.) Home Model Commercial Model Total unit cost 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.) Activity Cost Pool Estimated Overhead Estimated Use of Cost Drivers Activity-Based Overhead Rate Receiving Pounds per pound $ $ Forming Machine hours per machine hour $ Assembling Parts $ per part Testing Tests per test $ Painting Gallons per gallon $ Packing and shipping Pounds per pound $ Home Model Estimated Use of Activity-Based Drivers Overhead Rates Cost Assigned Commercial Model Estimated Use of Activity-Based Drivers Overhead Rates Cost Assigned Activity Cost Pool Receiving $ $ Forming $ $ Assembling $ Testing $ $ Painting $ Packing and shipping $ $ Total costs assigned (a) $ $ Units produced (b) Overhead cost per unit [(a) + (b)] ta