In: Accounting
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 | 13,000 | units |
Sprockets | 0.40 | 54,000 | units |
Additional information about the company follows:
Hubs require $30 in direct materials per unit, and Sprockets require $13.
The direct labor wage rate is $19 per hour.
Hubs require special equipment and are more complex to manufacture than Sprockets.
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) | $ | 25,200 | 140 | 112 | 252 |
Special processing (machine-hours) | $ | 276,000 | 4,600 | 0 | 4,600 |
General factory (organization-sustaining) | $ | 183,200 | 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.
Solution
Activity rate | ||
Machine setup | $ 100.00 | Per setup |
Special processing | $ 60.00 | Per machine hour |
.
Hubs | Sprockets | |
Total Cost per unit | $ 67.51 | $ 20.81 |
Working
Calculation of Activity rates | |||||
Activity Cost Pool | Activity driver | Overhead Cost (A) | Expected Activity (B) | Activity rate (A/B) | |
Machine setup | Number of setup | $ 25,200 | 252 | $ 100.00 | Per setup |
Special processing | Number of machine hour | $ 276,000 | 4600 | $ 60.00 | Per machine hour |
.
Cost assigned to Hubs | |||
Activity name | Activity Rates | Activity | ABC Cost |
(A) | (B) | (A x B) | |
Machine setup | $ 100.00 | 140.00 | $ 14,000.00 |
Special processing | $ 60.00 | 4,600.00 | $ 276000.00 |
Total Overheads assigned | $ 290,000.00 | ||
Production | 13,000.00 | ||
Overhead cost per unit | $ 22.31 |
.
Cost assigned to Sprockets | |||
Activity name | Activity Rates | Activity | ABC Cost |
(A) | (B) | (A x B) | |
Machine setup | $ 100.00 | 112 | $ 11,200 |
Special processing | $ 60.00 | 0 | $ 0 |
Total Overheads assigned | $ 11,200.00 | ||
Production | 54,000.00 | ||
Overhead cost per unit | $ 0.21 |
.
ABC Costing | ||
Hubs | Sprockets | |
Direct material | $ 30.00 | $ 13.00 |
Direct labor (Labor rate x Hours per unit) | $ 15.20 | $ 7.60 |
Overheads | $ 22.31 | $ 0.21 |
Total Cost per unit | $ 67.51 | $ 20.81 |