Problem 4-1A Combat Fire, Inc. manufactures steel cylinders and nozzles for two
ID: 2536576 • Letter: P
Question
Problem 4-1A
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 $1,568,500. Thus, the predetermined overhead rate is $16.29 or ($1,568,500 ÷ 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.
Activity Cost Pools
Cost Drivers
Estimated Overhead
Expected Use of Cost Drivers
Expected Use of Cost Drivers
Expected use of drivers by product
Home
Expected use of drivers by product
Commercial
Receiving
Pounds
$87,100
335,000
335,000
215,000
120,000
Forming
Machine Hours
157,500
35,000
35,000
27,000
8,000
Assembling
Number of parts
390,600
217,000
217,000
165,000
52,000
Testing
Number of tests
61,200
25,500
25,500
15,500
10,000
Painting
Gallons
36,806
5,258
5,258
3,680
1,578
Packing and shipping
Pounds
837,500
335,000
215,000
215,000
120,000
$1,570,706
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Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.)
Total unit cost:
Home Model $_____
Commercial Model $______
--------------------------------------------------------------------------------------------
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
Pools
Estimated Overhead
Expected 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
--------------
$
------------
-----------
-------------
-----------
----------------------------------------------------------------
Prepare a schedule assigning each activity’s 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.)
Activity Cost Pools
Expected use of drivers
Activity-based overhead rates
Cost assigned
Expected use of drivers
Activity-based overhead rates
Cost Assigned
Receiving
$
$
$
$
$
Forming
$
$
$
$
$
Assembling
$
$
$
$
$
Testing
$
$
$
$
$
Painting
$
$
$
$
$
Packing and shipping
$
$
$
$
$
Total costs assigned(a)
--------------------------
------------------------
$
--------------------------
-----------------------
$
Units Produced(b)
---------------------------------------
------------------------------------
$
---------------------------------------
------------------------------------
$
Overhead cost per unit (a)/(b)
---------------------------------------
------------------------------------
$
---------------------------------------
------------------------------------
$
--------------------------------------------------------------------------------------------
Compute the total cost per unit for each product under ABC. (Round answer to 2 decimal places, e.g. 12.25.)
Total cost per unit:
Home Model: $
Commercial Model: $
----------------------------------------------------------------------------------------------
Classify each of the activities as a value-added activity or a non–value-added activity.
Activity:
Receiving:
Forming:
Assembling:
Testing:
Painting:
Packing and shipping:
Activity Cost Pools
Cost Drivers
Estimated Overhead
Expected Use of Cost Drivers
Expected Use of Cost Drivers
Expected use of drivers by product
Home
Expected use of drivers by product
Commercial
Receiving
Pounds
$87,100
335,000
335,000
215,000
120,000
Forming
Machine Hours
157,500
35,000
35,000
27,000
8,000
Assembling
Number of parts
390,600
217,000
217,000
165,000
52,000
Testing
Number of tests
61,200
25,500
25,500
15,500
10,000
Painting
Gallons
36,806
5,258
5,258
3,680
1,578
Packing and shipping
Pounds
837,500
335,000
215,000
215,000
120,000
$1,570,706
Explanation / Answer
Combat Fire Inc
Home
Commercial
Direct material
$18.50
$26.50
Direct labor
$19
$19
Manufacturing overhead
$24.43
$24.43
Total unit cost
$61.93
$69.93
Manufacturing overhead cost per unit –
Predetermined overhead rate = $1,568,800/96,300 hours = $16.29 per direct labor hour
Number of hours needed for each product = 1.5 hours
Overhead cost per unit = 16.29 x 1.5 hours = $24.43 per unit
Activity Cost Pool
Estimated Overhead
Expected use of cost drivers
Activity Based overhead rates
Receiving
$87,100
335,000 pounds
$0.26 per pound
Forming
$157,500
35,000 machine hours
$4.50 per MH
Assembling
$390,600
217,000 parts
$1.80 per part
Testing
$61,200
25,500 tests
$2.40 per test
Painting
$36,806
5,258 gallons
$7 per gallon
Packing and Shipping
$837,500
335,000 pounds
$2.50 per pound
Home
Commercial
Activity Cost Pool
Estimated Use of Drivers
Activity-Based Overhead Rates
Cost Assigned
Estimated Use of Drivers
Activity-Based Overhead Rates
Cost Assigned
Receiving
215,000 pounds
$0.26 per pound
$55,900
120,000 pounds
$0.26 per pound
$31,200
Forming
27,000MHs
$4.50 per MHr
$121,500
8,000 MH
$4.50 per MHr
$36,000
Assembling
165,000 parts
$1.80 per part
$297,000
52,000 parts
$1.80 per part
$93,600
Testing
15,500 tests
$2.40 per test
$37,200
10,000 tests
$2.40 per test
$24,000
Painting
3,680 gallons
$7.00 per galon
$25,760
1,578 gallons
$7.00 per galon
$11,046
Packing and Shipping
215,000 pounds
$2.50 per pound
$537,500
120,000 pounds
$2.50 per pound
$300,000
Total cost assigned (a)
$1,074,860
$495,846
Units produced (b)
54,000
10,200
Overhead cost per unit [(a)÷ (b)]
$19.90
$48.61
Computation of total cost per unit for each product under ABC:
Home
Commercial
Direct material
$18.50
$26.50
Direct labor
$19
$19
Manufacturing overhead
$19.90
$48.61
Total unit cost
$57.40
$94.11
Classify each of the activities as a value-added activity or a non-value-added activity:
Activity
Receiving
Non-Value-Added
Forming
Value-Added
Assembling
Value-Added
Testing
Non-Value-Added
Painting
Value-Added
Packing and Shipping
Value-Added
Home
Commercial
Direct material
$18.50
$26.50
Direct labor
$19
$19
Manufacturing overhead
$24.43
$24.43
Total unit cost
$61.93
$69.93
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