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:

								Expected Use of Drivers by Product
Activity Cost Pools		Cost Drivers		Estimated Overhead		Expected Use of Cost Drivers		Home		Commercial
Receiving		Pounds		$88,500		335,000		215,000		120,000
Forming		Machine hours		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
Painting		Gallons		57,500		5,258		3,680		1,578
Packing and shipping		Pounds		820,000		335,000		215,000		120,000
				$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		$enter a dollar amount rounded to 2 decimal places		$enter a dollar amount rounded to 2 decimal places

Answer 1

Solution a:

Computation of unit cost of each product - Traditional costing - Combat fire Inc.
Particulars	Home Fire Extinguisher	Commercial Fire Extinguisher
Direct material	$18.50	$26.50
Direct labor	$19.00	$19.00
Manufacturing overhead	$24.65	$24.65
Unit Product Cost	$62.15	$70.15