Problem 4-1A a-e (Video) Combat Fire, Inc. manufactures steel cylinders and nozz
ID: 2336112 • Letter: P
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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 x (54,000 +10,200)1. Estimated annual manufacturing overhead is $1,569,238. Thus, the predetermined overhead rate is $16.30 or ($1,569,238 ÷ 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. Estimated Use of Drivers by Product Estimated Use of Receiving Forming Assembling Testing Painting Packing and shipping Activity Cost Pools Cost Drivers Estimated Overhead Cost Drivers Home Commercial 120,000 8,000 52,000 10,000 1,578 120,000 Pounds Machine hours Number of parts Number of tests Gallons Pounds $83,750 155,050 403,620 44,880 57,838 824,100 $1,569,238 335,000 215,000 35,000 27,000 217,000 165,000 25,500 15,500 5,258 3,680 335,000 215,000Explanation / Answer
Total unit cost of each product under traditional product costing Home Commercial Direct Materials $ 18.50 $ 26.50 Direct labor 19.00 19.00 Overhead 24.45 24.45 ($16.30*1.50) ($16.30*1.50) Total Unit Cost $ 61.95 $ 69.95 Computation of activity based overhead rates Activity cost pool Estimated Overhead Estimated use of cost drivers Activity Based overhead rate Receiving $ 83,750 335,000 Pounds $ 0.25 per pound Forming 155,050 35,000 Machine hours $ 4.43 per machine hour Assembling 403,620 217,000 Parts $ 1.86 per part Testing 44,880 25,500 Tests $ 1.76 per test Painting 57,838 5,258 Gallons $ 11.00 per gallon Packing and Shipping 824,100 335,000 Pounds $ 2.46 per pound Schedule of assiging each activity's overhead cost pool to each product based on use of cost drivers Activity cost pool Estimated use of cost drivers Activity Based overhead rate Cost Assigned Estimated use of cost drivers Activity Based overhead rate Cost Assigned Receiving 215,000 $ 0.25 $ 53,750 120,000 $ 0.25 $ 30,000 Forming 27,000 $ 4.43 119,610 8,000 $ 4.43 35,440 Assembling 165,000 $ 1.86 306,900 52,000 $ 1.86 96,720 Testing 15,500 $ 1.76 27,280 10,000 $ 1.76 17,600 Painting 3,680 $ 11.00 40,480 1,578 $ 11.00 17,358 Packing and Shipping 215,000 $ 2.46 528,900 120,000 $ 2.46 295,200 Total Costs assigned $ 1,076,920 $ 492,318 Units Produced 54,000 10,200 Overhead cost per unit 19.94 48.27 Total unit cost per unit for each product under ABC Home Commercial Direct Materials $ 18.50 $ 26.50 Direct labor 19.00 19.00 Overhead 19.94 48.27 Total Unit Cost $ 57.44 $ 93.77 Classification of activity Receiving Non Value Added Forming Value Added Assembling Value Added Testing Non Value Added Painting Value Added Packing and shipping Value Added
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