Problem 17-1A (Part Level Submission) Combat Fire, Inc. manufactures steel cylin
ID: 2400267 • Letter: P
Question
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 $1,570,800. Thus, the predetermined overhead rate is $16.31 or ($1,570,800 ÷ 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 Expected Use of Cost Drivers Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and shipping Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Estimated Overhead Home $87,700 148,000 409,000 46,000 53,100 827,000 $1,570,800 335,000 215,000 5,000 27,000 217,000 165,000 15,500 3,680 335,000 215,000 Commercial 120,000 8,000 52,000 10,000 1,578 120,000 25,500 5,258Explanation / Answer
Activity Cost Pool
Estimated Overhead
Expected Use of cost drivers
Activity based overhead rate
Receiving
$87,700
3,35,000 Pounds
$0.26 per pound
Forming
$1,48,000
35,000 Machine Hours
$4.23 per machine hour
Assembling
$4,09,000
2,17,000 Parts
$1.88 per part
Testing
$46,000
25,500 Tests
$1.80 per test
Painting
$53,100
5,258 Gallons
$10.10 per gallon
Packaging and Shipping
$8,27,000
3,35,000 Pounds
$2.47 per pound
TOTAL
$15,70,800
*Activity based overhead rate = Estimated Overhead / Expected Use of cost drivers
Activity Cost Pool
Estimated Overhead
Expected Use of cost drivers
Activity based overhead rate
Receiving
$87,700
3,35,000 Pounds
$0.26 per pound
Forming
$1,48,000
35,000 Machine Hours
$4.23 per machine hour
Assembling
$4,09,000
2,17,000 Parts
$1.88 per part
Testing
$46,000
25,500 Tests
$1.80 per test
Painting
$53,100
5,258 Gallons
$10.10 per gallon
Packaging and Shipping
$8,27,000
3,35,000 Pounds
$2.47 per pound
TOTAL
$15,70,800