Combat Fire Inc manufactures steel cylinders and nozzles for

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 $1,588,400. Thus, the predetermined overhead rate is $16.49 or ($1,588,400 ÷ 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 Expected 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 $89,900 155,000 412,000 47,000 58,500 826,000 $1,588,400 335,000 215,000 35,000 27,000 217,000165,000 25,500 15,500 3,680 335,000 215,000 Home Commercial 120,000 8,000 52,000 10,000 1,578 120,000 5,258

Solution

Per Unit Per Unit Total Total Particulars Home Model Commercial Model Direct Materials                 18.50                                       26.50              999,000.00 270,300.00 Direct Labour                 19.00                                       19.00           1,026,000.00 193,800.00 Direct Overhead                 24.74                                       24.74           1,335,690.00 252,297.00 Total                 62.24                                       70.24          3,360,690.00 716,397.00 Activity Estimated OH Expected use of cost drivers Activity based OH rate Receiving         89,900.00                             335,000.00                          0.27 Forming       155,000.00                               35,000.00                          4.43 Assembling       412,000.00                             217,000.00                          1.90 Testing         47,000.00                               25,500.00                          1.84 Painting         58,500.00                                  5,258.00                        11.13 Packing and Shipping       826,000.00                             335,000.00                          2.47 Total 1,588,400.00 Home Model Commercial Model Activity Expected use of cost drivers(i) Activity based OH rates(ii) Cost assigned(i*ii) Expected use of cost drivers(i) Activity based OH rates(ii) Cost assigned(i*ii) Receiving       215,000.00                                         0.27                57,697.01 120,000.00                                         0.27                32,202.99 Forming         27,000.00                                         4.43              119,571.43        8,000.00                                         4.43                35,428.57 Assembling       165,000.00                                         1.90              313,271.89      52,000.00                                         1.90                98,728.11 Testing         15,500.00                                         1.84                28,568.63      10,000.00                                         1.84                18,431.37 Painting            3,680.00                                       11.13                40,943.32        1,578.00                                       11.13                17,556.68 Packing and Shipping       215,000.00                                         2.47              530,119.40 120,000.00                                         2.47              295,880.60 Total Costs Assigned(a)          1,090,171.69              498,228.31 Units Produced (b)                54,000.00                10,200.00 OH cost per unit (a/b)                        20.19                        48.85