Question

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.80	14,000	units
Sprockets	0.40	54,000	units

Additional information about the company follows:

1. Hubs require $37 in direct materials per unit, and Sprockets require $14.

2. The direct labor wage rate is $19 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. The ABC system has the following activity cost pools:

	Estimated		Activity
Activity Cost Pool (Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	32,805	135	108	243
Special processing (machine-hours)	$	216,000	3,600	0	3,600
General factory (organization-sustaining)	$	335,200	NA	NA	NA

Required:

1. Compute the activity rate for each activity cost pool.

2. Determine the unit product cost of each product according to the ABC system.

Activity Cost Pool Activity Rate Machine setups per setup Special processing per MH

	Hubs Sprockets Direct materials Direct labor Overhead Unit cost

Answer 1

--All working forms part of the answer

--Requirement 1

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$32,805	243	$135	per setup
Special processing	$216,000	3600	$60	per MH

--Requirement 2

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$             37.00	[given]	$            14.00	[given]
Direct labor	$             15.20	0.80 DLHs x $ 19	$              7.60	0.40 DLHs x $ 19
Overhead	$             16.73	[ (135 x 135) + (3600 x 60)]/14000 units	$              0.27	[ (108 x 135) + (0 x 60)]/54000 units
Unit cost	$             68.93		$            21.87