Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fir
ID: 2338946 • Letter: C
Question
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 $ 1,542,790. Thus, the predetermined overhead rate is $ 16.02 or ($ 1,542,790 ÷ 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 Receiving Pounds $ 80,400 335,000 215,000 120,000 Forming Machine hours 144,900 35,000 27,000 8,000 Assembling Number of parts 399,280 217,000 165,000 52,000 Testing Number of tests 44,880 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 $ 1,542,790
Under traditional product costing, compute the total unit cost of each product.
Home Model Commercial Model Total unit cost $ enter a dollar amount rounded to 2 decimal places
Explanation / Answer
SOLUTION
Total unit cots of each product-
Home Commercial Direct material $18.50 $26.50 Direct labor $19.00 $19.00 Manufacturing overhead ($16.02 *1.5) $24.03 $24.03 Total unit costs $61.53 $69.53