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)]. Estimated annual manufacturing overhead is $1,585,316. Thus, the predetermined overhead rate is $16.46 or ($1,585,316=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. Estimated Use of Drivers by Product 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 $90,450 150,850 401,450 52,020 63,096 827,450 $1,585,316 Estimated Use of Cost Drivers 335,000 35,000 217,000 25,500 5,258 335,000 Home 215,000 27,000 165,000 15,500 3,680 215,000 Commercial 120,000 8,000 52,000 10,000 1,578 120,000

Answer 1

Q.1		Home Model	Commercial Model
	Total Unit Cost	62.19	70.19	(See Note 1)
	Note 1: Calculation of Total Unit cost per unit
		Home Model	Commercial Model
	Direct Material	18.5	26.5
	Direct Labour	19	19
	Overhead	24.69	24.69	(16.46 * 1.5 hours)
	Total	62.19	70.19
Q.2	Activity Cost Pool	Estimated Overhead	Estimated Use of Cost Driver		Activity based overhead rate
	Receiving	90450	335000	pounds	0.27	per pounds
	Forming	150850	35000	m h	4.31	per m h
	Assembling	401450	217000	parts	1.85	per parts
	Testing	52020	25500	tests	2.04	per tests
	Painting	63096	5258	gallons	12.00	per gallons
	Packaging	827450	335000	pounds	2.47	per pounds
	Total	1585316
Q.3		Home Model	Commercial Model
	Activity Cost Pool	Estimated Use of Cost Driver	Activity based overhead rate	Cost Assigned	Estimated Use of Cost Driver	Activity based overhead rate	Cost Assigned
	Receiving	215,000	0.27	58,050	120,000	0.27	32,400
	Forming	27,000	4.31	116,370	8,000	4.31	34,480
	Assembling	165,000	1.85	305,250	52,000	1.85	96,200
	Testing	15,500	2.04	31,620	10,000	2.04	20,400
	Painting	3,680	12.00	44,160	1,578	12.00	18,936
	Packaging	215,000	2.47	531,050	120,000	2.47	296,400
	Total cost assigned		1,086,500			498,816
	Units Produced		54,000			10,200
	Overhead cost per unit		20.12			48.90
	Note 1: Calculation of Total Unit cost per unit
		Home Model	Commercial Model
	Direct Material	18.5	26.5
	Direct Labour	19	19
	Overhead	20.12	48.90
	Total	57.62	94.40