FireOut, Inc. manufactures steel cylinders and nozzles for two models of fire ex
ID: 2433379 • Letter: F
Question
FireOut, 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 1 model is a high-volume (54,000 units), half-gallon cylinder that holds 2 pounds of multipurpose 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 hrs × (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,502,280. Thus, the predetermined overhead rate is $15.60 or ($1,502,280 ÷ 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 Pool
Cost Driver
Estimated Overhead
Expected Use
of Cost Drivers
Expected Use
of Drivers by Product
Home
Commercial
Receiving
Pounds
$70,350
335,000
215,000
120,000
Forming
Machine hours
150,500
35,000
27,000
8,000
Assembling
Number of parts
390,600
217,000
165,000
52,000
Testing
Number of tests
51,000
25,500
15,500
10,000
Painting
Gallons
52,580
5,258
3,680
1,578
Packing and shipping
Pounds
787,250
335,000
215,000
120,000
Activity Cost Pool
Cost Driver
Estimated Overhead
Expected Use
of Cost Drivers
Expected Use
of Drivers by Product
Home
Commercial
Receiving
Pounds
$70,350
335,000
215,000
120,000
Forming
Machine hours
150,500
35,000
27,000
8,000
Assembling
Number of parts
390,600
217,000
165,000
52,000
Testing
Number of tests
51,000
25,500
15,500
10,000
Painting
Gallons
52,580
5,258
3,680
1,578
Packing and shipping
Pounds
787,250
335,000
215,000
120,000
Explanation / Answer
Home model
Commercial model
Cost Driver
Expected Use of Drivers
Activity based overheadrates
Cost assigned
Expected Use of Drivers
Activity based overheadrates
Cost assigned
Total Costassigned
1,031,300
470,980
(18.50 + 19.00 + 19.10)
(26.50 + 19.00 + 46.17)
Home Commercial units 54,000 10,200 DL required 1.50 1.50 Total Annual Hrs 81000 15300 Manufacturing Overhead Per Hour 15.60 Directr material 18.50 26.50 Direct Labor Per unit not per hour 19.00 19.00 Manufacturing Overhead 23.40 23.40 60.90 68.90Related Questions
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