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 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 $1,582,000. Thus, the predetermined overhead rate is $16.43 or ($1,582,000 ÷ 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:

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 Activity Cost Pools Cost Drivers Estimated Overhead Cost Drivers Home Commercial Receiving Pounds $88,500 335,000 215,000 120,000 Machine hours Forming 153,000 35,000 27,000 8,000 Assembling Number of parts 410,000 217,000 165,000 52,000 Testing Number of tests 53,000 25,500 15,500 10,000 Gallons Painting 57,500 5,258 3,680 1,578 120,000 Packing and shipping Pounds 820,000 335,000 215,000 $1,582,000 (a) 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 cost

Answer 1

Calculate total unit cost

	Home Model	Commercial Model
Direct material	18.50	26.50
Direct labor	19	19
Overhead	16.43*1.5 = 24.65	24.65
Total Unit cost	62.15	70.15