Fireout, inc. manufactures steel cylinders and nozzles for two models
) a home fire extinguisher and (2) a commercial fire extinguisher.
P4-1A FireOut, 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), 2-gallon cylinder that holds10 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 hrs × (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,557,480. Thus, the predetermined overhead rate is $16.17 or ($1,557,480 / 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 $19.00 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 Pool |
Cost Driver |
Estimated Overhead |
Expected Use of Cost Drivers |
Expected Use of Drivers by Product |
||
|
Home |
Commercial |
|||||
|
Receiving |
Pounds |
$70,350 |
335,000 |
215,000 |
120,000 |
|
|
Forming |
Machine hours |
150,500 |
35,000 |
27,000 |
8,000 |
|
|
Assembling |
Number of parts |
412,300 |
217,000 |
165,000 |
52,000 |
|
|
Testing |
Number of tests |
51,000 |
25,500 |
15,500 |
10,000 |
|
|
Painting |
Gallons |
52,580 |
5,258 |
3,680 |
1,578 |
|
|
Packing and shipping |
Pounds |
820,750 |
335,000 |
215,000 |
120,000 |
|
|
$1,557,480 |
||||||
Instructions:
a. Under traditional product costing, compute the total unit cost of both products. Prepare a single comparative schedule of the individual costs by products, in the format provided below.
b. Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).
c Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)