Question

Concord, 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 $1,576,578. Thus, the predetermined overhead rate is $16.37 or ($1,576,578 +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. Activity Cost Pools Cost Drivers Receiving Pounds Forming Machine hours Assembling Number of parts Testing Number of tests Painting Gallons Packing and shipping Pounds Estimated Overhead $83.750 154,000 412,300 47.940 57,838 820.750 $1,576,578 Estimated Use of Drivers by Product Estimated Use of Cost Drivers Home Commercial 335,000 215,000 120,000 35,000 27,000 8,000 217.000 165,000 52,000 25,500 15,500 10.000 5,258 3,680 1.578 335.000 215,000 120,000

Answer 1

1.

	Home Model	Commercial Model
Total Unit Cost	$ 62.06	$ 70.06

2.

Activity Cost Pool	Estimated Overhead	Estimated Use of Cost Drivers	Activity Based Overhead Rate
Receiving	$ 83,750	335,000 pounds	$ 0.25 per pound
Forming	154,000	35,000 machine hours	$ 4.4 per machine hour
Assembling	412,300	217,000 parts	$ 1.9 per part
Testing	47,940	25,500 tests	$ 1.88 per test
Painting	57,838	5,258 gallons	$ 11 per gallon
Packing and Shipping	820,750	335,000 pounds	$ 2.45 per pound
	$ 1,576,578

3.

	Home Model			Commercial Model
Activity Cost Pool	Estimated Use of Drivers	Activity Based Overhead Rates	Cost Assigned	Estimated Use of Cost Drivers	Activity Based Overhead Rates	Cost Assigned
Receiving	215,000 pounds	$ 0.25 per pound	$ 53,750	120,000 pounds	$ 0.25 per pound	30,000
Forming	27,000	4.4 per machine hour	118,800	8,000	4.4 per pound	35,200
Assembly	165,000	1.90 per part	313,500	52,000	1.90 per part	98,800
Testing	15,500 tests	1.88 per test	29,140	10,000 tests	1.88 per test	18,800
Painting	3,680 gallons	11 per gallon	40,480	1,578 gallons	11 per gallon	17,358
Packing and Shipping	215,000 pounds	2.45 per pound	526,750	120,000 pounds	2.45 per pound	294,000
Total costs assigned			$1,082,420			$494,158
Units produced			54,000			10,200
Overhead cost per unit			$ 20.04			$ 48.45

4.

	Home Model	Commercial Model
Total cost per unit	$ 57.54	$ 93.95