ombat 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 Cost Drivers Estimated Overhead Estimated Use of Cost Drivers Home Commercial Receiving Pounds $ 90,450 335,000 215,000 120,000 Forming Machine hours 150,850 35,000 27,000 8,000 Assembling Number of parts 401,450 217,000 165,000 52,000 Testing Number of tests 52,020 25,500 15,500 10,000 Painting Gallons 63,096 5,258 3,680 1,578 Packing and shipping Pounds 827,450 335,000 215,000 120,000 $ 1,585,316

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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	Cost Drivers	Estimated Overhead	Estimated Use of Cost Drivers	Home	Commercial
Receiving	Pounds	$ 90,450	335,000	215,000	120,000
Forming	Machine hours	150,850	35,000	27,000	8,000
Assembling	Number of parts	401,450	217,000	165,000	52,000
Testing	Number of tests	52,020	25,500	15,500	10,000
Painting	Gallons	63,096	5,258	3,680	1,578
Packing and shipping	Pounds	827,450	335,000	215,000	120,000
		$ 1,585,316