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 x (54,000 + 10,200)). Estimated annual manufacturing overhead is $1,574,800. Thus, the predetermined overhead rate is $16.35 or ($1,574,800 +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 Estimated 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 $87.100 151.900 405.790 49.980 52.580 827,450 $1,574,800 335,000 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

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Answer 1

	Home Model	Commercial Model
Total Unit Cost	62.03	70.03	(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	24.53	24.53	(16.35 * 1.5 hours)
Total	62.03	70.03