Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.60	20,000	units
Sprockets	0.20	54,000	units

Additional information about the company follows:

1. Hubs require $36 in direct materials per unit, and Sprockets require $15.

2. The direct labor wage rate is $17 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)	$	35,235	145	116	261
Special processing (machine-hours)	$	220,500	4,900	0	4,900
General factory (organization-sustaining)	$	98,400	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 Answer
	[A]	[B]	[C = A/B]
Machine setups	$35,235	261	$135.000	per setup
Special processing	$220,500	4900	$45.00	per MH

• [2]

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                                     36.00	[given]	$                       15.00	[given]
Direct labor	$                                     10.20	0.60 DLHs x $ 17	$                         3.40	0.20 DLHs x $ 17
Overhead	$                                     12.00	[ (145 x$ 135) + (4900 x $45)]/20000 units]	$                         0.29	[ (116 x $ 135) / 54000]
Unit cost	$                                     58.20		$                        18.69