Question

Problem 5-35A

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 model is a high-volume (54,000 units), half-litre cylinder that holds 2.50 kilograms of multi-purpose dry chemical at 480 PSI (pounds per square inch). The commercial model is a low-volume (10,200 units), two-litre cylinder that holds 10 kilograms of multi-purpose dry chemical at 390 PSI. Both products require 1.50 hours of direct labour for completion. Therefore, total annual direct labour hours are 96,300 or [1.50 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 labour hour. The direct materials cost per unit is $18.22 for the home model and $27.06 for the commercial model. The direct labour cost is $19.60 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		Estimated Overhead		Expected Use of Cost Drivers		Expected Use of Drivers by Product
								Home		Commercial
Receiving		Kilograms		$70,650		337,500		217,000		120,500
Forming		Machine hours		152,500		35,000		27,000		8,000
Assembling		Number of parts		392,800		219,700		167,000		52,700
Testing		Number of tests		52,900		26,900		16,800		10,100
Painting		Litres		53,090		6,500		4,100		2,400
Packing and shipping		Kilograms		780,340		337,500		217,000		120,500
				$1,502,280

		Products
Manufacturing Costs		Home Model		Commercial Model
Direct materials		$18.22		$27.06
Direct labour		19.60		19.60
Overhead		23.40		23.40
Total unit cost		$61.22		$70.06

Under ABC, prepare a schedule showing the calculations of the activity-based overhead rates (per cost driver). (Round rate per cost driver to 2 decimal places, e.g. 15.25 and other answers to 0 decimal places e.g. 1525.)

Cost Pool		Est. MOH		Est. Usage		Rate		Cost Drivers
Receiving		$				$		per kilogram
Forming		$				$		per machine hr
Assembly		$				$		per part
Testing		$				$		per test
Painting		$				$		per litre
Packing & shipping		$				$		per kilogram
		$

Answer 1