Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	19,000	units
Sprockets	0.30	44,000	units

Additional information about the company follows:

1. Hubs require $34 in direct materials per unit, and Sprockets require $18.

2. The direct labor wage rate is $14 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)	$	22,230	130	104	234
Special processing (machine-hours)	$	166,500	3,700	0	3,700
General factory (organization-sustaining)	$	224,500	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.

Answer 1

ANSWER :-

1. Compute the Activity rate of each activity cost pool :-

Activity Cost Pool	Overhead cost	Total cost drivers	Activity Rate
Machine Setup	$ 22,230	$ 234	$ 95
Special Processing	$ 1,66,500	$ 3,700	₹ 45

2. Determine the unit Product cost of each product according to the ABC System :-

Particulars	Hubs	Sprockets
Direct Materials	$34.00	$18.00
Direct Labor	$9.80	$4.20
Overhead	$9.41	$0.22
Unit product Cost	$53.21	$22.42

Working Note :-

Overhead cost per unit :-

Labour Cost per unit :-

Particular		Hubs	Sprockets
Labour hours per unit	A	0.70	0.30
Labour hours per unit	B	$14.00	$14.00
Dierct labour per unit	A * B	$9.80	$4.20