FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire

| January 30, 2017

Question
FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire extinguishers: (1) a home fire extinguisher and (2) a commercial fire extinguisher.

P4-1A 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-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), 2-gallon cylinder that holds10 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 $1,557,480. Thus, the predetermined overhead rate is $16.17 or ($1,557,480 / 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 $19.00 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 Pool

Cost

Driver

Estimated Overhead

Expected Use of Cost Drivers

Expected Use of

Drivers by Product

Home

Commercial

Receiving

Pounds

$70,350

335,000

215,000

120,000

Forming

Machine hours

150,500

35,000

27,000

8,000

Assembling

Number of parts

412,300

217,000

165,000

52,000

Testing

Number of tests

51,000

25,500

15,500

10,000

Painting

Gallons

52,580

5,258

3,680

1,578

Packing and shipping

Pounds

820,750

335,000

215,000

120,000

$1,557,480

Instructions:

a. Under traditional product costing, compute the total unit cost of both products. Prepare a single comparative schedule of the individual costs by products, in the format provided below.

b.Under ABC, prepare a schedule showing the computations of the activity-based overhead rates (per cost driver).

c Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use of cost drivers. (Include a computation of overhead cost per unit, rounding to the nearest cent.)

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