Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.90	10,000	units
Sprockets	0.50	49,000	units

Additional information about the company follows:

1. Hubs require $32 in direct materials per unit, and Sprockets require $11.

2. The direct labor wage rate is $16 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)	$	30,420	130	104	234
Special processing (machine-hours)	$	105,000	4,200	0	4,200
General factory (organization-sustaining)	$	278,500	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

• [1]

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$30,420	234	$130.000	per setup
Special processing	$105,000	4200	$25.00	per MH

• [2]

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                 32.00	[given]	$                        11.00	[given]
Direct labor	$                 14.40	0.90 DLHs x $ 16	$                         8.00	0.50 DLHs x $ 16
Overhead	$                 12.19	[(130 x $130)+(4200 x $25)]/10000	$                         0.28	[(104 x $130)+(0 x $25)]/49000
Unit cost	$                 58.59	Answer	$                        19.28	Answer