Question

In: Accounting

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

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.

Solutions

Expert Solution

  • [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


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