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	12,000	units
Sprockets	0.40	43,000	units

Additional information about the company follows:

a. Hubs require $21 in direct materials per unit, and Sprockets require $11.

b. The direct labor wage rate is $17 per hour.

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

d. 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)	$	17,955	95	76	171
Special processing (machine-hours)	$	161,000	4,600	0	4,600
General factory (organization-sustaining)	$	302,000	NA	NA	NA

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

	Hubs Sprockets Direct materials Direct labor Overhead Unit cost

Answer 1

Activity Cost Pool	Activity Rate
	Calculation	Rate
Machine setups	=17955/171 =	$              105.00	per setup
Special processing	=161000/4600 =	$                35.00	per MH
	HUBS	SPROCKETS
Direct materials	$                  21.00	$                11.00
Direct labor [17*0.8/17*0.4]	$                  13.60	$                   6.80
Overhead:
= 95*105/12000 =	$                     0.83
= (76*105+4600*35)/43000 =		$                   3.93
Unit cost	$                  35.43	$                21.73