question archive Combat Fire, Inc
Combat Fire, Inc
Subject:AccountingPrice:3.91 Bought6
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)]. Estimated annual manufacturing overhead is $1,585,316. Thus, the predetermined overhead rate is $16.46 or ($1,585,316 ÷ 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 Activity Cost Pools Cost Drivers Estimated Overhead Estimated Use of Cost Drivers Home Commercial Receiving Pounds $90,450 335,000 215,000 120,000 Forming Machine hours 150,850 35,000 27,000 8,000 Assembling Number of parts 401,450 217,000 165,000 52,000 Testing Number of tests 52,020 25,500 15,500 10,000 Painting Gallons 63,096 5,258 3,680 1,578 Packing and shipping Pounds 827,450 335,000 215,000 120,000 $1,585,316 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.) Home Model Commercial Model Total unit cost $enter a dollar amount rounded to 2 decimal places $enter a dollar amount rounded to 2 decimal places
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Traditional Costing:
Predetermined overhead rate = Total Budgeted Overhead Cost / Total Budgeted Direct Labor Hours = $ 1,585,316 / 96,300 direct labor hours = $ 16.46 per direct labor hour
| Home | Commercial | |
| Direct Materials | $ 18.50 | $ 26.50 |
| Direct Labor | 19.00 | 19.00 |
| Manufacturing Overhead ( $ 16.46 x 1.5 DLH ) | 24.69 | 24.69 |
| Total Unit Cost | $ 62.19 | $ 70.19 |
Activity Based Costing
| Home | Commercial | |
| Direct Materials | $ 18.50 | $ 26.50 |
| Direct Labor | 19.00 | 19.00 |
| Manufacturing Overhead | 20.12 | 48.90 |
| Total Unit Cost | $ 57.62 | $ 94.40 |
| Home Model | Commercial Model | ||||||
| Cost Pools | Total Cost | Total Volume of Cost Driver | Activity Rate | Volume of Cost Driver Consumed | Cost Assigned | Volume of Cost Driver Consumed | Cost Assigned |
| Receiving | $90,450 | 335,000 pounds | $ 0.27 per pound | 215,000 pounds | $ 58,050 | 120,000 pounds | $ 32,400 |
| Forming | 150,850 | 35,000 machine hours | 4.31 per machine hour | 27,000 machine hours | 116,370 | 8,000 machine hours | 34,480 |
| Assembling | 401,450 | 217,000 parts | 1.85 per part | 165,000 | 305,250 | 52,000 | 96,200 |
| Testing | 52,020 | 25,500 tests | 2.04 per test | 15,500 | 31,620 | 10,000 | 20,400 |
| Painting | 63,096 | 5,258 gallons | 12 per gallon | 3,680 | 44,160 | 1,578 | 18,936 |
| Packing and Shipping | 827,450 | 335,000 pounds | 2.47 per pound | 215,000 | 531,050 | 120,000 | 296,400 |
| Totals | 1,585,316 | 1,086,500 | 498,816 | ||||
| Units Produced | 54,000 units | 10,200 units | |||||
| Overhead Cost per Unit | $ 20.12 | $ 48.90 |
