Problem 17-1A (Part Level Submission) Expected Use of Drivers by Product Activit
ID: 2396065 • Letter: P
Question
Problem 17-1A (Part Level Submission)
Expected Use of
Drivers by Product
Activity Cost Pools
Cost Drivers
Estimated Overhead
Expected Use of
Cost Drivers
Home
Commercial
$87,000
335,000
215,000
120,000
155,000
35,000
27,000
8,000
407,000
217,000
165,000
52,000
50,000
25,500
15,500
10,000
57,100
5,258
3,680
1,578
826,000
335,000
215,000
120,000
$1,582,100
(a)
Home Model
Commercial Model
Problem 17-1A (Part Level Submission)
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)]. Expected annual manufacturing overhead is $1,582,100. Thus, the predetermined overhead rate is $16.43 or ($1,582,100 ÷ 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:
Expected Use of
Drivers by Product
Activity Cost Pools
Cost Drivers
Estimated Overhead
Expected Use of
Cost Drivers
Home
Commercial
Receiving Pounds$87,000
335,000
215,000
120,000
Forming Machine hours155,000
35,000
27,000
8,000
Assembling Number of parts407,000
217,000
165,000
52,000
Testing Number of tests50,000
25,500
15,500
10,000
Painting Gallons57,100
5,258
3,680
1,578
Packing and shipping Pounds826,000
335,000
215,000
120,000
$1,582,100
Explanation / Answer
Calculate unit product cost :
Home model Commercial model Manufacturing overhead 54000*1.5*16.43 = 1330830 10200*1.5*16.43 = 251379 Unit 54000 10200 Manufacturing overhead per unit 24.65 24.65 Direct material 18.50 26.50 Direct labour 19.00 19.00 Unit product cost 62.15 70.15