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 $1,576,200. Thus, the predetermined overhead rate is $16.37 or ($1,576,200 ÷ 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
Activity Cost Pools		Cost Drivers		Estimated Overhead		Expected Use of Cost Drivers		Home		Commercial
Receiving		Pounds		$86,600		335,000		215,000		120,000
Forming		Machine hours		149,000		35,000		27,000		8,000
Assembling		Number of parts		413,000		217,000		165,000		52,000
Testing		Number of tests		47,000		25,500		15,500		10,000
Painting		Gallons		58,600		5,258		3,680		1,578
Packing and shipping		Pounds		822,000		335,000		215,000		120,000
				$1,576,200

Answer 1

		Home		Commercial
		Model		model
total unit cost		62.06		70.06	answer
materials		18.50		26.50
direct labor		19.00		19.00
overhead (16.37*1.5)		24.56		24.56
total unit cost		62.06		70.06
		Estimated	expected	activity based overhead
Activity cost pool		overhead	drivers	rate
Receiving		86,600	335,000	0.26	per pound
Forming		149,000	35,000	4.26	per machine hour
Assembling		413,000	217,000	1.90	per part
Testing		47,000	25,500	1.84	per test
Painting		58,600	5,258	11.14	per gallon
packing & shipping		822,000	335,000	2.45	per pound
		1,576,200
		Home Model			Commercial model
Activity cost pool		expected use	oh rate	cost assigned	expected use	oh rate	cost assigned
Receiving		215,000	0.26	55579	120,000	0.26	31021
Forming		27,000	4.26	114943	8000	4.26	34057
Assembling		165,000	1.90	314032	52000	1.90	98968
Testing		15,500	1.84	28569	10,000	1.84	18431
Painting		3,680	11.14	41013	1,578	11.14	17587
packing & shipping		215,000	2.45	527552	120,000	2.45	294448
total costs assigned				1081688			494512
units produced				54,000			10,200
overhead cost per unit				20.03			48.48
			home	Commercial
total cost per unit			57.53	93.98
Activity
Receiving			non value added
Forming			value added
Assembling			value added
Testing			non value added
Painting			value added
packing & shipping			value added