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	18,000	units
Sprockets	0.40	51,000	units

Additional information about the company follows:

1. Hubs require $29 in direct materials per unit, and Sprockets require $17.

2. The direct labor wage rate is $18 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)	$	18,630	90	72	162
Special processing (machine-hours)	$	95,000	3,800	0	3,800
General factory (organization-sustaining)	$	157,200	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

Answer:

1.)

Activity Cost Pool	Overhead cost	Total cost drivers	Activity Rate = ANSWER
Machine Setup	$          18630	162	$                115	per setup
Special Processing	$        95000	3800	$                   25	per MH

2.)

Working #1

Activity Cost Pool	Hubs	Sprockets
Machine Setup	$          10350 [90 x $115]	$        8280 [72 x $115]
Special Processing	$        95000[ 3800x $25]	$                        -
Total Overhead cost allocated	$        105350	$        8280
Total units	18000	51000
Overhead cost per unit	$ 5.85	$                   0.16

Working #2

Working		Hubs	Sprockets
A	Direct labor hours per unit	0.80	0.40
B	Wage rate per hout	$                   18	18
C= A x B	Direct labor cost per unit	$                     14.4	$                   7.2

---Answer

Working		Hubs	Sprockets
A	Direct Materials	$                   29	$                 17
B [Working #2]	Direct Labor	$                     14.4	$                   7.2
C [Working #1]	Overhead	$                     5.85	$                   0.16
D = A+B+C	Unit Cost	$                   49.25	$                 24.36

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