Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.50	18,000	units
Sprockets	0.10	46,000	units

Additional information about the company follows:

1. Hubs require $30 in direct materials per unit, and Sprockets require $15.

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)	$	23,085	95	76	171
Special processing (machine-hours)	$	147,000	4,900	0	4,900
General factory (organization-sustaining)	$	82,600	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

* All working forms part of the answer

--Requirement 1

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$23,085	171	$135	per setup
Special processing	$147,000	4900	$30	per MH

--Requirement 2

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                30.00	[given]	$            15.00	[given]
Direct labor	$                  7.00	0.5 DLHs x $ 14	$              1.40	0.10 DLHs x $ 14
Overhead	$                  8.88	[ (95 x 135) + (4900 x 30)]/18000 units	$              0.22	[ (76 x 135) + (0 x 30)]/46000 units
Unit cost	$                45.88		$            16.62