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	16,000	units
Sprockets	0.10	44,000	units

Additional information about the company follows:

1. Hubs require $33 in direct materials per unit, and Sprockets require $15.

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)	$	20,700	115	92	207
Special processing (machine-hours)	$	185,000	3,700	0	3,700
General factory (organization-sustaining)	$	65,200	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.

Answer 1

Req 1:	Computation of Activity Rate
	Activity Cost Pool	Estimated Overhead cost	Estimated Activity(Total)	Activity rate
	Machine Set Up	20,700	207	100.00	per setup
	Special Processing	185,000	3,700	50.00	per machine hr
Req 2	Computation of Unit Cost
		Hubs	Sprockets
	Direct Material	33.00	15.00
	Direct Labour	8.00	1.60
	Manufacturing Overhead	12.28	0.21	See Note 1 below
	Total	53.28	16.81
	Note 1: Overhead allocation
		Activity rate	Hubs(Cost Driver)	Hubs (MOH Allocation)	Sprockets (Cost Driver)	Sprockets (MOH Allocation)
	Machine Set Up	100.00	115	11,500	92	9,200
	Special Processing	50.00	3,700	185,000	-	-
	Total MOH allocate			196,500		9,200
	No. of Units			16,000		44,000
	MOH Allocated per unit			12.28		0.21