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-gallon cylinder that holds 2 1/2 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. x (54,000 + 10,200)]. Expected annual manufacturing overhead is $1,557,480. Thus, the predetermined overhead rate is $16.17 or ($1,557,480 ÷ 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.
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Expected Use of
Drivers by Product
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| Activity Cost Pools |
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Cost Drivers |
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Estimated Overhead |
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Expected Use of
Cost Drivers
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Home |
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Commercial |
| Receiving |
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Pounds |
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$70,350 |
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335,000 |
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215,000 |
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120,000 |
| Forming |
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Machine hours |
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150,500 |
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35,000 |
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27,000 |
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8,000 |
| Assembling |
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Number of parts |
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412,300 |
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217,000 |
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165,000 |
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52,000 |
| Testing |
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Number of tests |
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51,000 |
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25,500 |
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15,500 |
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10,000 |
| Painting |
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Gallons |
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52,580 |
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5,258 |
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3,680 |
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1,578 |
| Packing and shipping |
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Pounds |
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820,750 |
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335,000 |
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215,000 |
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120,000 |
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$1,557,480 |
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