Combat Fire, Inc. manufactures steel cylinders and nozzles for two models of fir
ID: 2516256 • 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 mode 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 $1,566,400. Thus, the predetermined overhead rate is $16.27 or ($1,566,400 ÷ 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 Estimated Overhead Activity Cost Pools Receiving Forming Assembling Testing Painting Packing and shipping Cost Drivers Pounds Machine hours Number of parts Number of tests Gallons Pounds Home Commercial $85,700 145,000 402,000 52,000 53,700 828,000 $1,566,400 335,000 215,000 35,000 27,000 217,000 165,000 25,500 15,500 3,680 335,000 215,000 120,000 8,000 52,000 10,000 1,578 120,000 5,258 Under traditional product costing, compute the total unit cost of each product. (Round answers to 2 decimal places, e.g. 12.25.) Home Model Commercial Model Total unit costExplanation / Answer
Home
Commercial
total unit cost
$61.90
$69.90
Total unit cost Computation is as follows,
Home
Commercial
direct materials
$18.50
$26.50
direct labor
$19
$19
manufacturing overhead
$24.40
$24.40
($16.27 x 1.5 DLH)
total unit cost
$61.90
$69.90
Activity cost pool
Estimated overhead
expected use of cost drivers
Activity-based overhead rates
Receiving
$85,700
335,000 pounds
$0.26 per pound
Forming
$145,000
35,000 machine hours
$4.14 per MH
Assembling
$402,000
217,000 parts
$1.85 per part
Testing
$52,000
25,500 tests
$2.04 per test
Painting
$53,700
5,258 gallons
$10.21 per gallon
Packaging & shipping
$828,000
335,000 pounds
$2.47 per pound
$1,566,400
Activity rate = estimated overhead/expected use of cost drivers
Home Model
Commercial Model
Activity Cost Pool
Expected use of Drivers
Activity -Based overhead rates
Cost Assigned
Expected use of drivers
activity-based overhead rates
cost assigned
Receiving
215,000 pounds
$0.26 per pound
$55,001
120,000 pounds
$0.26 per pound
$30,699
Forming
27,000 MH
$4.14 per MH
$111,857
8,000 MH
$4.14 per MH
$33,143
Assembling
165,000 parts
$1.85 per part
$305,668
52,000 parts
$1.85 per part
$96,332
Testing
15,500 tests
$2.04 per test
$31,608
10,000 tests
$2.04 per test
$20,392
Painting
3,680 gallons
$10.21 per gallon
$37,584
1,578 gallons
$10.21 per gallon
$16,116
Packaging & shipping
215,000 pounds
$2.47 per pound
$531,403
120,000 pounds
$2.47 per pound
$296,597
Total cost assigned (a)
$1,073,121
$493,279
units produced (b)
54,000
10,200
overhead cost per unit (a) ÷ (b)
$19.87
$48.36
Home
Commercial
total unit cost
$57.37
$93.86
Computations are as follows,
Home
Commercial
direct materials
$18.50
$26.50
direct labor
$19
$19
manufacturing overhead
$19.87
$48.36
total unit cost
$57.37
$93.86
Activity
Receiving
Non-value-added
Forming
Value-added
Assembling
Value-added
Testing
Non-value-added
Painting
value-added
Packaging & shipping
Value-added
Home
Commercial
total unit cost
$61.90
$69.90