Problem 17-1A (Part Level Submission) Combat Fire, Inc. manufactures steel cylin

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 x (54,000 + 10,200). Expected annual manufacturing overhead is $1,577,300. Thus, the predetermined overhead rate is $16.38 or ($1,577,300 ÷ 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 $84,400 153,000 407,000 54,000 57,900 821,000 $1,577,300 335,000 215,000 27,000 217,000 165,000 25,500 15,500 3,680 335,000 215,000 Home Commercial 120,000 8,000 52,000 10,000 1,578 120,000 35,000 5,258

Explanation / Answer

Activity cost pool Estimated Overhead Expected use of Cost driver Activity based rate Receiving 84400 335000 Pounds 0.25 per pound Forming 153000 35000 Machine hours 4.37 per machine hour Assembly 407000 217000 Parts 1.88 per part testing 54000 25500 Tests 2.12 per test Painting 57900 5258 Gallons 11.01 per Gallon packing and shipping 821000 335000 Pounds 2.45 per pound Total Overheads 1,577,300

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