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Problem 17-1A (Part Level Submission)
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 $1,572,700. Thus, the predetermined overhead rate is $16.33 or ($1,572,700 ÷ 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.
The company’s managers identified six activity cost pools and related cost drivers and accumulated overhead by cost pool as follows:
| Expected Use of Drivers by Product |
|||||||||||||||
| Activity Cost Pools | Cost Drivers | Estimated Overhead | Expected Use of Cost Drivers |
Home | Commercial | ||||||||||
| Receiving | Pounds | $87,900 | 335,000 | 215,000 | 120,000 | ||||||||||
| Forming | Machine hours | 150,000 | 35,000 | 27,000 | 8,000 | ||||||||||
| Assembling | Number of parts | 400,000 | 217,000 | 165,000 | 52,000 | ||||||||||
| Testing | Number of tests | 48,000 | 25,500 | 15,500 | 10,000 | ||||||||||
| Painting | Gallons | 56,800 | 5,258 | 3,680 | 1,578 | ||||||||||
| Packing and shipping | Pounds | 830,000 | 335,000 | 215,000 | 120,000 | ||||||||||
1.)Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.)
home / study / business / accounting / questions and answers / fireout, inc. manufactures steel cylinders and … 2.)Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver). (Round your answers to 2 decimal places, e.g. 2.25.) 3.)Complete the schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Use rates from part b above and round cost assigned to 0 decimal places, e.g. 12,250. Round overhead per unit to 2 decimal places, e.g. 2.25. Note that due to rounding your total cost assigned will be slightly different than calculated above.) 4.) Compute the total cost per unit for each product under ABC. (Round your answers to 2 decimal places, e.g. 12.25.) 5.)Classify each of the activities as a value-added activity or a non-value-added activity. |
$1,572,700 | ||||||||||||||
Expert Answer
| ans 1 | ||||||||
| Home | Commercial | |||||||
| Direct Material | $18.50 | $26.50 | ||||||
| Direct Labor | $19 | $19 | ||||||
| Overhead cost (1.5*16.33) | 24.50 | 24.50 | ||||||
| Cost per unit | $62.00 | $70.00 | ||||||
| Expected Use of | ||||||||
| Drivers by Product | ||||||||
| ans 2 | ans 2 | |||||||
| Activity Cost Pools | Cost Drivers | Estimated Overhead O | Expected Use of C | Activity rate A=O/C | Home H | Cost allocated H*A | Commercial C | Cost allocated C*A |
| Cost Drivers | ||||||||
| Receiving | Pounds | $87,900 | 335,000 | $0.26 | 215,000 | $56,413 | 120,000 | $31,487 |
| Forming | Machine hours | 150,000 | 35,000 | $4.29 | 27,000 | $115,714 | 8,000 | $34,286 |
| Assembling | Number of parts | 400,000 | 217,000 | $1.84 | 165,000 | $304,147 | 52,000 | $95,853 |
| Testing | Number of tests | 48,000 | 25,500 | $1.88 | 15,500 | $29,176 | 10,000 | $18,824 |
| Painting | Gallons | 56,800 | 5,258 | $10.80 | 3,680 | $39,754 | 1,578 | $17,046 |
| Packing and shipping | Pounds | 830,000 | 335,000 | $2.48 | 215,000 | $532,687 | 120,000 | $297,313 |
| ans 3 | ||||||||
| Activity Cost Pools | Activity rate A=O/C | Home H | Cost allocated H*A | Commercial C | Cost allocated C*A | |||
| Receiving | 0.26 | 215000 | 56413 | 120000 | 31487 | |||
| Forming | 4.29 | 27000 | 115714 | 8000 | 34286 | |||
| Assembling | 1.84 | 165000 | 304147 | 52000 | 95853 | |||
| Testing | 1.88 | 15500 | 29176 | 10000 | 18824 | |||
| Painting | 10.80 | 3680 | 39754 | 1578 | 17046 | |||
| Packing and shipping | 2.48 | 215000 | 532687 | 120000 | 297313 | |||
| Total overhead cost | 1077892 | 494808 | ||||||
| No. of units | 54000 | 10200 | ||||||
| Overhead cost per unit | 19.96 | 48.51 | ||||||
| ans 4 | ||||||||
| ABC method | ||||||||
| Home | Commercial | |||||||
| Direct Material | $18.50 | $26.50 | ||||||
| Direct Labor | $19 | $19 | ||||||
| Overhead cost | 19.96 | 48.51 | ||||||
| Cost per unit | $57.46 | $94.01 | ||||||
| ans 5 | ||||||||
| Forming | Value added | |||||||
| Assembling | Value added | |||||||
| Testing | Non value added | |||||||
| painting | Value added | |||||||
| Packing & shipping | Value added | |||||||
| If we take ABC overhead rate exactly to two decimal than answer can be different following is the answer | ||||||||
| ans 2 | ans 2 | |||||||
| Activity Cost Pools | Cost Drivers | Estimated Overhead O | Expected Use of C | Activity rate A=O/C | Home H | Cost allocated H*A | Commercial C | Cost allocated C*A |
| Cost Drivers | ||||||||
| Receiving | Pounds | $87,900 | 335,000 | $0.26 | 215,000 | $55,900 | 120,000 | $31,200 |
| Forming | Machine hours | 150,000 | 35,000 | $4.29 | 27,000 | $115,830 | 8,000 | $34,320 |
| Assembling | Number of parts | 400,000 | 217,000 | $1.84 | 165,000 | $303,600 | 52,000 | $95,680 |
| Testing | Number of tests | 48,000 | 25,500 | $1.88 | 15,500 | $29,140 | 10,000 | $18,800 |
| Painting | Gallons | 56,800 | 5,258 | $10.80 | 3,680 | $39,744 | 1,578 | $17,042 |
| Packing and shipping | Pounds | 830,000 | 335,000 | $2.48 | 215,000 | $533,200 | 120,000 | $297,600 |
| ans 3 | ||||||||
| Activity Cost Pools | Activity rate A=O/C | Home H | Cost allocated H*A | Commercial C | Cost allocated C*A | |||
| Receiving | 0.26 | 215000 | 55900 | 120000 | 31200 | |||
| Forming | 4.29 | 27000 | 115830 | 8000 | 34320 | |||
| Assembling | 1.84 | 165000 | 303600 | 52000 | 95680 | |||
| Testing | 1.88 | 15500 | 29140 | 10000 | 18800 | |||
| Painting | 10.80 | 3680 | 39744 | 1578 | 17042 | |||
| Packing and shipping | 2.48 | 215000 | 533200 | 120000 | 297600 | |||
| Total overhead cost | 1077414 | 494642 | ||||||
| No. of units | 54000 | 10200 | ||||||
| Overhead cost per unit | 19.95 | 48.49 | ||||||
| ans 4 | ||||||||
| ABC method | ||||||||
| Home | Commercial | |||||||
| Direct Material | $18.50 | $26.50 | ||||||
| Direct Labor | $19 | $19 | ||||||
| Overhead cost | 19.95 | 48.49 | ||||||
| Cost per unit | $57.45 | $93.99 | ||||||
