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Homework answers / question archive / The purpose of conceptual framework for financial reporting     Combat Fire, Inc

The purpose of conceptual framework for financial reporting     Combat Fire, Inc

Accounting

The purpose of conceptual framework for financial reporting

 

 

Combat 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 $1,585,316. Thus, the predetermined overhead rate is $16.46 or ($1,585,316 ÷ 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.


Estimated Use of
Drivers by Product
Activity Cost Pools
Cost Drivers
Estimated Overhead
Estimated Use of
Cost Drivers
Home
Commercial
ReceivingPounds$90,450
335,000
215,000
120,000
FormingMachine hours150,850
35,000
27,000
8,000
AssemblingNumber of parts401,450
217,000
165,000
52,000
TestingNumber of tests52,020
25,500
15,500
10,000
PaintingGallons63,096
5,258
3,680
1,578
Packing and shippingPounds827,450
335,000
215,000
120,000
$1,585,316
(a)
Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.50.)


Home Model
Commercial Model
Total unit cost$
enter a dollar amount rounded to 2 decimal places
 
$
enter a dollar amount rounded to 2 decimal places
 
eTextbook and Media

 

 

Lewis and Stark is a public accounting firm that offers two primary

services, auditing and tax-return preparation. A controversy has developed between the partners of the two service lines as to who is contributing the greater amount to the bottom line. The area of contention is the assignment of overhead. The tax partners argue for assigning overhead on the basis of 40% of direct labor dollars, while the audit partners argue for implementing activity-based costing. The partners agree to use next year's budgeted data for purposes of analysis and comparison. The following overhead data are collected to develop the comparison.


Estimated Use of Cost
Drivers per Service
Activity Cost Pools
Cost Drivers
Estimated Overhead
Estimated Use of
Cost Drivers
Audit
Tax
Employee trainingDirect labor dollars$213,000
$1,775,000
$1,196,000
$579,000
Typing and secretarialNumber of reports/forms76,400
2,500
800
1,700
ComputingNumber of minutes193,200
60,000
27,000
33,000
Facility rentalNumber of employees146,000
40
22
18
TravelPer expense reports81,400
Direct
56,000
25,300
$710,000
(a)
Using traditional product costing as proposed by the tax partners, compute the total overhead cost assigned to both services (audit and tax) of Lewis and Stark.


Audit
Tax
Total overhead cost assigned$ 

eTextbook and Media

 

 

The following transactions appeared in the books of Mamello Stores

in the month of June 2020. All transactions exclude VAT. The perpetual inventory system is in use. Transactions: Sold goods on credit to Mr Baobab, R7 450, with the mark-up of 25% on sales. Issued a receipt to Mrs Jones for goods sold R5 670. Courier charges on purchases, R500; were invoiced to us by Rudi Deliveries. Issued a credit note to Mr Baobab for oversized products, R450. Bought goods on credit from Buhle Stores for R6 700. Sent a debit note to Buhle stores with goods worth R700. Buhle stores acknowledged receipt of the goods and sent the credit note. Donated merchandise with the value of R2 000 to the local church. The owner took goods with the selling price of R900 for private use. YOU ARE REQUIRED TO: Record all the transactions in the General Journal of Mamello stores for June 2020. Narrations are required.

 

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