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	30,000	units
Sprockets	0.20	46,000	units

Additional information about the company follows:

1. Hubs require $26 in direct materials per unit, and Sprockets require $14.

2. The direct labor wage rate is $13 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)	$	31,590	130	104	234
Special processing (machine-hours)	$	117,500	4,700	0	4,700
General factory (organization-sustaining)	$	82,400	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

Answer:

• All working forms part of the answer
• Requirement 1

Activity Cost Pool	Overhead cost	Total cost drivers	Activity Rate = ANSWER
Machine Setup	$          31590	234	$                135	per setup
Special Processing	$        117500	4700	$                   25	per MH

• Requirement 2

Working #1

Activity Cost Pool	Hubs	Sprockets
Machine Setup	$          17550 [130 x $135]	$        14040 [104 x $135]
Special Processing	$        117500 [ 4700 x $25]	$                        -
Total Overhead cost allocated	$        135050	$        14040
Total units	30000	46000
Overhead cost per unit	$                     4.50	$                   0.31

Working #2

Working		Hubs	Sprockets
A	Direct labor hours per unit	0.60	0.20
B	Wage rate per hout	$                   13	13
C= A x B	Direct labor cost per unit	$                     7.8	$                   2.6

---Answer

Working		Hubs	Sprockets
A	Direct Materials	$                   26	$                 14
B [Working #2]	Direct Labor	$                     7.8	$                   2.6
C [Working #1]	Overhead	$                     4.50	$                   0.31
D = A+B+C	Unit Cost	$                   38.3	$                 16.91