Combat Fire, Inc. manufactures steel cylinders

Problem 5-35A
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 $18.64 for the home model and $26.66 for the commercial model. The
direct labour cost is $20.20 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:
Activity Cost Pools Cost Drivers
Estimated
Overhead
Expected Use
of Cost
Drivers
Expected Use
of Drivers by
Product
Home Commercial
Receiving Kilograms $70,450 337,000 216,000 121,000
Forming Machine hours 151,000 35,200 27,000 8,200
Assembling Number of parts 390,800 219,000 167,000 52,000
Testing Number of tests 51,100 26,000 16,000 10,000
Painting Litres 54,310 6,260 4,260 2,000
Packing and
shipping Kilograms 784,620 337,000 216,000 121,000
$1,502,280
Under traditional product costing, calculate the total unit cost of each product. Prepare a simple
comparative schedule of the individual costs by product. (
Round answers to 2 decimal places,
e.g. 15.25.)
Products
Manufacturing
Costs
Home
Model
Commercial
Model
Direct materials
$ $
Direct labour
Overhead
Total unit cost
$ $
Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per
cost driver). (
Round rate per cost driver to 2 decimal places, e.g. 15.25 and other
answers to 0 decimal places e.g. 1525.)
Cost Pool
Est.
MOH
Est.
Usage Rate
Cost
Drivers
Receiving
$ $
per kilogram
18.64 26.66
20.20 20.20
23.4 23.4
62.24 70.26
70450 337000 0.21
151000 35200 4.29

Prepare a schedule assigning each activity’s overhead cost pool to each product based on the use
of cost drivers. (
Round per unit cost to 2 decimal places, e.g. 15.25 and other answers to
0 decimal places e.g. 1525.)
Activity-based overhead
applied Home Commercial
Receiving-kilograms
$ $
Forming—machine hours
Assembly—number of parts
Testing—number of tests
Painting—litres
Packing and shipping-kilograms
Total overhead applied
$ $
Total units produced
Per unit overhead cost
$ $
Calculate the total cost per unit for each product under ABC. (
Round answers to 2 decimal
places, e.g. 15.25.)
Home Commercial
Per unit cost
$ $
Classify each of the activities as a value-added activity or a non–value-added activity.
390800 219000 1.78
51100 26000 1.97
54310 6260 8.68
784620 337000 2.33
1502280 45154.90 25295.10
115823.86 35176.14
298007.31 92792.69
31446.15 19653.85
36958.56 17351.44
502901.84 281718.16
1030292.62 471987.38
54000 10200
19.08 46.27
57.92 93.13
Value-added
Value-added

2)
Current Designs manufactures two different types of kayaks, rotomoulded kayaks and composite
kayaks. The following information is available for each product line.
Rotomoulde
d
Composit
e
Sales price/unit $1,010 $2,120
Variable costs/unit $600 $1,420
The company’s fixed costs are $869,000. An analysis of the sales mix identifies that rotomoulded
kayaks make up 80% of the total units sold.
Determine the weighted-average unit contribution margin for Current Designs.
Weighted-average unit contribution margin
$
Determine the break-even point in units for Current Designs and identify how many units of each
type of kayak will be sold at the break-even point.
(Round answers to 0 decimal places, e.g.
5,275.)
Break-even Sales units
Rotomolded
Kayaks
Composite
Kayaks
Break-even Sales Distribution units units
Assume that the sales mix changes, and rotomoulded kayaks now make up 70% of total units sold.
Calculate the total number of units that would need to be sold to earn a net income of $2.12
million and identify how many units of each type of kayak will be sold at this level of
income.
(Round answers to 0 decimal places, e.g. 5,275.)
Required
Sales units
Rotomolded
Kayaks
Composite
Kayaks
Break-even Sales Distribution units units
Value-added
Value-added
Value-added
468
1857
1486 371
6014
4210 1804

Assume that Current Designs will have sales of $3.30 million with two-thirds of the sales dollars in
rotomoulded kayaks and one third of the sales dollars in composite kayaks. Assuming $700,000 of
fixed costs are allocated to the rotomoulded kayaks and $170,000 to the composite kayaks,
prepare a CVP income statement for each product line.
(Round answers to 0 decimal places,
e.g. 5,275.)
Rotomolded
Kayaks
Composite
Kayaks
$ $
$ $
Calculate the degree of operating leverage for each product line.
(Round answers to 2 decimal
places, e.g. 52.75.)
Rotomolded
Kayaks
Composite
Kayaks
Degree of operating
leverage
3.)
Decision Making 6-1 (Part Level Submission)
Current Designs manufactures two different types of kayaks, rotomoulded kayaks and composite
kayaks. The following information is available for each product line.
Rotomoulde
d
Composit
e
Sales price/unit $840 $1,760
Variable costs/unit $500 $1,180
The company’s fixed costs are $722,000. An analysis of the sales mix identifies that rotomoulded
kayaks make up 80% of the total units sold.
Sales 2200000 1100000
Variable Costs 1306931 736792
Contribution Margin 893069 363208
Fixed Costs 700000 170000
Net Income / (Loss) 193069 193208
4.63 1.88

(a)
Your answer is correct.
Determine the weighted-average unit contribution margin for Current Designs.
Weighted-average unit contribution margin
$
(b)
Determine the break-even point in units for Current Designs and identify how many units of each
type of kayak will be sold at the break-even point.
(Round answers to 0 decimal places, e.g.
5,275.)
Break-even Sales units
Rotomolded
Kayaks
Composite
Kayaks
Break-even Sales Distribution units units
4.)
Problem 7-43A (Part Level Submission)
The Kamloops Outdoors Corporation, which produces a highly successful line of summer lotions and
insect repellents and sells them to wholesalers, has decided to diversify in order to stabilize its sales
throughout the year. A natural area for the company to consider is the production of winter lotions
and creams to prevent dry and chapped skin.
388
1861
1489 372

(a)
Should Kamloops Outdoors make or buy the tubes?
(Round answers to 2 decimal places, e.g.
15.25. If an amount reduces the net income then enter with a negative sign preceding
the number e.g. -15,000 or parenthesis, e.g. (15,000).)
Make
(Per Box)
Buy
(Per Box)
Net Income
Increase (Decrease)
$ $ $
$ $ $
Kamloops should
the tubes.
5.)
Decision Making 7-1 (Part 2) (Part Level Submission)
Current Designs faces a number of important decisions that require incremental analysis.
Current Designs is always working to identify ways to increase efficiency while becoming more
environmentally conscious. During a recent brainstorming session, one employee suggested to
Diane Buswell, controller, that the company should consider replacing the current rotomould oven
as a way to realize savings from reduced energy consumption. The oven operates on natural gas,
Direct material
6 4.8 -1.2
Direct labour 4.10 3.69 -0.41
Variable overheads 2.95 2.66 -0.30
Purchase price 0 2 2
Total cost
13.05 13.15 0.09
make