Problem 17-1A FireOut, Inc. manufactures steel cylinders and nozzles for two mod
ID: 2415830 • Letter: P
Question
Problem 17-1A 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-gallon cylinder that holds 2 1/2 pounds of multipurpose 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 hrs. x (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,551,480. Thus, the predetermined overhead rate is $16.11 or ($1,551,480 ÷ 96,300) per direct labor hour.
Explanation / Answer
Answer 1. Calculation of Total Cost Under Traditional Costing Model Home Commercial Direct Material 18.50 26.50 Direct labor 19.00 19.00 Overhead Home - $16.11 X 1.5 Hrs 24.17 Commercial - $16.11 X 1.5 Hrs 24.17 Total Unit Cost 61.67 69.67 Answer 2. Answer 2. Activity Cost Pool Estimated Overhead Expected use of Cost Drivers Activity-Based Overhead rate Receiving 74900 335000 0.22 Per Pound Forming 147900 35000 4.23 per machine hour Assembling 404700 217000 1.86 per part Testing 45400 25500 1.78 per test Painting 52580 5258 10.00 per gallon Packing & Shipping 826000 335000 2.47 per pound Alocation of Overhead Cost Under ABC Particulars Model Total Home Commercial Receiving 48,070 26,830 74900 Forming 114,094 33,806 147900 Assembling 307,721 96,979 404700 Testing 27,596 17,804 45400 Painting 36,800 15,780 52580 Packing & Shipping 530,119 295,881 826000 Total 1,064,401 487,079 1,551,480 No. of Units 54000 10200 Overhead Cost per Unit 19.71 47.75 Calculation of Total Cost Under ABC Model Home Commercial Direct Material 18.50 26.50 Direct labor 19.00 19.00 Overhead 19.71 47.75 Total Unit Cost 57.21 93.25