Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fir
ID: 2339930 • 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 x (54,000+10,200)]. Estimated annual manufacturing overhead is $ 1,568,390. Thus, the predetermined overhead rate is $ 16.29 or ($ 1,568,390 ÷ 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 Estimated Use of Cost Drivers Activity Cost Pools Cost Drivers Estimated Overhead Home Commercial Receiving Forming Assembling Testing Painting Packing and shipping Pounds Machine hours Number of parts Number of tests Gallons Pounds $ 87,100 152,950 410,130 44,880 52,580 820,750 $1,568,390 335,000 215,000 27,000 217,000 165.000 15,500 3,680 335,000 215,000 120,000 8,000 52,000 10,000 1,578 120,000 35,000 25,500 5,258Explanation / Answer
Home model Commercial model Activity cost pool Estimated use of drivers Activty based overhead rates Cost assigned Estimated use of drivers Activty based overhead rates Cost assigned Receiving 215000 0.26 55900 120000 0.26 31200 Forming 27000 4.37 117990 8000 4.37 34960 Assembling 165000 1.89 311850 52000 1.89 98280 Testing 15500 1.76 27280 10000 1.76 17600 Painting 3680 10 36800 1578 10 15780 Packing and shipping 215000 2.45 526750 120000 2.45 294000 Total assigned costs 1076570 491820 Units produced 54000 10200 Overhead cost per unit 19.94 48.22