Problem -
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-litre cylinder that holds 2.50 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.50 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 or [1.50 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 labour hour. The direct materials cost per unit is $18.42 for the home model and $26.90 for the commercial model. The direct labour cost is $19.20 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:
Please see attached for more information.
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Activity Cost Pools
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Cost Drivers
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Estimated Overhead
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Expected Use of Cost Drivers
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Expected Use of Drivers by Product
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Home
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Commercial
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|
Receiving
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Kilograms
|
$70,360
|
336,400
|
215,000
|
121,400
|
|
Forming
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Machine hours
|
152,700
|
35,000
|
27,000
|
8,000
|
|
Assembling
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Number of parts
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392,900
|
220,300
|
167,000
|
53,300
|
|
Testing
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Number of tests
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52,700
|
26,500
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16,200
|
10,300
|
|
Painting
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Litres
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54,120
|
6,610
|
4,110
|
2,500
|
|
Packing and shipping
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Kilograms
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779,500
|
336,400
|
215,000
|
121,400
|
|
|
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$1,502,280
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|
|
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Under traditional product costing, calculate the total unit cost of each product. Prepare a simple comparative schedule of the individual costs by product.
Calculate the total cost per unit for each product under ABC.
Prepare a schedule assigning each activity's overhead cost pool to each product based on the use of cost drivers.
Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver).