Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.80	15,000 units
Sprockets	0.40	56,000 units

Additional information about the company follows:

a. Hubs require $20 in direct materials per unit, and Sprockets require $19.

b. The direct labor wage rate is $10 per hour.

c. Hubs are more complex to manufacture than Sprockets and they require special processing.

d. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated		Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	18,225	75	60	135
Special processing (machine-hours)	$	100,000	4,000	0	4,000
General factory (Direct labor-hours)	$	172,000	12,000	22,400	34,400

Required:

1. Compute the activity rate for each activity cost pool.

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.

Required 1

Required 2

Compute the activity rate for each activity cost pool.

	Activity Cost Pool Activity Rate Machine setups per setup Special processing per MH General factory per DLH

Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Hubs Sprockets Direct materials Direct labor Overhead Unit product cost $0.00 $0.00

Answer 1

1-	Estimated		Expected Activity
	Activity Cost Pool (and Activity Measure)	Overhead Cost		Hubs	Sprockets	Total	activity rate for each activity= overhead cost/total of activity pool	activity rate for each activity
	Machine setups (number of setups)	$	18,225	75	60	135	18225/135	135
	Special processing (machine-hours)	$	100,000	4,000	0	4,000	100000/4000	25
	General factory (Direct labor-hours)	$	172,000	12,000	22,400	34,400	172000/34400	5
2-			Hubs		sprockets
	direct material	15000*20	300000	56000*20	1120000
	direct wages =total labor hours*direct wage rate	(15000*.8)*20	240000	(56000*.4)*20	448000
	machine set up	135*75	10125	(135*60)	8100
	special processing	250*4000	100000	0	0
	general factory	12000*5	60000	22400*5	112000
	total cost		710125		1688100
	no of units produced		15000		56000
	cost per unit	710125/15000	47.34	1688100/56000	30.14