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 1 model is a high-volume (54,000 units),
half-gallon cylinder that holds 2½ pounds of multipurpose 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 hrs × (54,000 + 10,200)]. Expected annual manufacturing overhead is
$1,502,280. Thus, the predetermined overhead rate is $15.60 or
($1,502,280 ÷ 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 Cost Driver Estimated Expected Useof Expected Use
Pool
Overhead Cost Drivers of
Drivers by Product
Home Commercial
Receiving Pounds $70,350
335,000 215,000 120,000
Forming Machine 150,500
35,000 27,000
8,000
hours
Assembling Number 390,600
217,000 165,000 52,000
of parts
Testing Number 51,000
25,500 15,500 10,000
of tests
Painting Gallons 52,580
5,258 3,680
1,578
Packing Pounds 787,250
335,000 215,000 120,000 and shipping
$1,502,280
Requirement:
- Under traditional product costing, compute the total unit cost of both products.
- Under ABC, complete the schedule showing the computations of the activity-based overhead rates (per cost driver).
- Complete the schedule assigning each activity\'s overhead cost pool to each product based on the use of cost drivers.
- Compute the total cost per unit for each product under ABC
Classify each of the activities as a value-added activity or a non-value-added activity.
