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	22,000	units
Sprockets	0.20	49,000	units

Additional information about the company follows:

Hubs require $39 in direct materials per unit, and Sprockets require $11.

The direct labor wage rate is $10 per hour.

Hubs require special equipment and are more complex to manufacture than Sprockets.

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)	$	22,230	130	104	234
Special processing (machine-hours)	$	147,000	4,200	0	4,200
General factory (organization-sustaining)	$	111,200	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

a)

Activity Cost Pool	(a)	(b)		(a) ÷ (b)
	Estimated	Expected		Activity
	Overhead	Activity		Rate
	Cost
Machine setups	$22,230	234	setups	$95.00	per setup
Special processing	$147,000	4,200	MHs	$35.00	per MH
General factory	$111,200	23,000	DLHs	$4.83	per DLH

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b)

Hubs:
Activity Cost Pool	(a)		(b)		(a) × (b)
	Activity Rate		Activity		ABC Cost
Machine setups	$95	per setup	130	setups	12350
Special processing	$35	per MH	4,200	MHs	147000
General factory	$4.83	per DLH	13,200	DLHs	63819.1304
Total					$223,169

Sprockets:
Activity Cost Pool	(a)		(b)		(a) × (b)
	Activity Rate		Activity		ABC Cost
Machine setups	$95	per setup	104	setups	9880
Special processing	$35	per MH	0	MHs	0
General factory	$4.8	per DLH	9,800	DLHs	47380.9
Total					$57,261

Calculation of the unit product cost of each product according to the ABC system

	Hubs	Sprockets
Direct materials	$39.00	$11.00
Direct labor:
$10 per DLH × 0.60 DLHs per unit	6
$10 per DLH × 0.20 DLHs per unit		2
Overhead:
$223,169 ÷ 22,000 units	10.14
$57261 ÷ 49,000 units		1.17
Unit cost	$55.14	$14.17