Texts:
a) Under traditional product costing, compute the total unit cost of each product.
Home Model | Commercial Model
b) 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 Pool | Estimated Overhead | Estimated Use of Cost Drivers | Activity-based Overhead Rate
Concord 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 $1,576,578. Thus, the predetermined overhead rate is $16.37 or ($1,576,578 / 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 Use of Cost Drivers | Estimated Overhead | Use of Drivers by Product
Receiving | Pounds | $83,750 | 335,000 | 215,000 | 120,000
Forming | Machine hours | 154,000 | 35,000 | 27,000 | 8,000
Assembling | Number of parts | 412,300 | 217,000 | 165,000 | 52,000
Testing | Number of tests | 47,940 | 25,500 | 15,500 | 10,000
Painting | Gallons | 57,838 | 5,258 | 3,680 | 1,578
Packing and shipping | Pounds | 820,750 | 335,000 | 215,000 | 120,000
$1,576,578
