Question

Za 5.35A ane 7A a-b Problem 5.JSA - FireOut Inc, manufactures steel cylinders and nozzles for two modes of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire her. The home models volume (54,000 units), half-litre cylinder that holds 2.5 kilograms of multi-purpose dry chemical at 400 PSI (pounds per square inch). The commercial model is a low-volume (9.500 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 150 hours of direct labour for completion. Therefore, total anual direct labour hours are 95,250 or [1.50 hrs. (54,000 + 9,500). Estimated annual manufacturing overhead $1,524,000. Thus, the predetermined overhead rate is $16.00 or (51,524,000 95,250) per direct labour hour. The direct materials cost per unit is $18.12 for the home model and $26.30 for the commercial model. The direct labour costs $18.46 per for both the home and commercial models 1 esults by Study The company's managers identified six activity cost pools and related cost drivers, and estimated overhead by cost pool as follows: Activity Cost Pools Cost Drivers Receiving Kilograms Forming Machine hours Assembling Number of parts Testing Number of tests Painting Packing and shipping kilograms Estimated Estimated Use Estimated Use Overhead of Cost Drivers of Drivers by Product Home Commercial $67,200 JJ6,000 215,000 121,000 151,200 36,000 28,000 8,000 392,400 218,000 165,000 53,000 54,000 27.000 16,000 11,000 52,800 6,000 4,000 2,000 806,400 336,000 215,000 121,000 $1,524,000 utres wers Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product. (Round places, e.g. 15.25.) Products Home Model Commercial Mode Manufacturing Costs Direct materials Direct labour Overhead Total unit cost c alces 15.25 Under ABC, prepare a schedule showing the calculations of the activity based overhead rates (per cost driver). (Round rate per cost driver to other answers to decimal places e.g. 1525.) User Cost Pool

Answer 1

Solution 1:

Computation of unit cost of each product - Traditional costing -Fire out Inc.
Particulars	Home	Commercial
Direct material	$18.12	$26.30
Direct labor	$18.40	$18.40
Manufacturing overhead	$24.00	$24.00
Unit Product Cost	$60.52	$68.70

Solution 2:

Determination of activity rate for each activity
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate
					Receiving	$67,200.00	kilogram	336000	$0.20
Forming	$151,200.00	Machine hours	36000	$4.20
Assembling	$392,400.00	Nos of parts	218000	$1.80
Testing	$54,000.00	Nos of tests	27000	$2.00
Painting	$52,800.00	Litres	6000	$8.80
Packing and shipping	$806,400.00	kilogram	336000	$2.40
Total	$1,524,000.00

Solution 3:

Allocation of overhead and computation of overhead cost per unit
Activity	Estimated Overhead Cost	Activity Base	Usage of Activity Base	Activity Rate	Home		Commercial
					Usage	Allocated Costs	Usage	Allocated Costs
Receiving	$67,200.00	kilogram	336000	$0.20	215000	$43,000	121000	$24,200
Forming	$151,200.00	Machine hours	36000	$4.20	28000	$117,600	8000	$33,600
Assembling	$392,400.00	Nos of parts	218000	$1.80	165000	$297,000	53000	$95,400
Testing	$54,000.00	Nos of tests	27000	$2.00	16000	$32,000	11000	$22,000
Painting	$52,800.00	Litres	6000	$8.80	4000	$35,200	2000	$17,600
Packing and shipping	$806,400.00	kilogram	336000	$2.40	215000	$516,000	121000	$290,400
Total	$1,524,000.00					$1,040,800		$483,200
Nos of units						54000		9500
Overhead cost per unit						$19.27		$50.86

Solution 4:

Computation of unit cost of each product - Activity Based costing - Fire out inc.
Particulars	Home Fire Extinguisher	Commercial Fire Extinguisher
Direct material	$18.12	$26.30
Direct labor	$18.40	$18.40
Manufacturing overhead	$19.27	$50.86
Unit Product Cost	$55.79	$95.56

Solution 5:

Activity	Value Added / Non Value Added
Receiving	Non Value Added
Forming	Value Added
Assembling	Value Added
Testing	Non Value Added
Painting	Value Added
Packing and shipping	Value Added