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FireOut Inc 70350

Price: $2.50


FireOut, Inc. manufactures steel cylinders and nozzles for two models of fi re
extinguishers: (1) a home fi re extinguisher and (2) a commercial fi re 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 hrs. 3 (54,000 1 10,200)]. Expected annual manufacturing overhead
is $1,557,480. Thus, the predetermined overhead rate is $16.17 or ($1,557,480 4 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.


Instructions
(a) Under traditional product costing, compute the total unit cost of each product.
Prepare a simple comparative schedule of the individual costs by product (similar to
Illustration 4-10 on page 152).
(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.)
(d) Compute the total cost per unit for each product under ABC.
(e) Classify each of the activities as a value-added activity or a non–value-added activity

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