Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.50	11,000	units
Sprockets	0.10	56,000	units

Additional information about the company follows:

1. Hubs require $36 in direct materials per unit, and Sprockets require $13.

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)	$	28,710	145	116	261
Special processing (machine-hours)	$	147,000	4,200	0	4,200
General factory (organization-sustaining)	$	44,700	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

Computation of Activity Rate
Activities	Costs	Cost drivers	Cost driver total	Overhead rate(Costs/Cost driver total)
Machine Setups	$28,710	No. of setups	261	$110.00	per setup
Special Processing	$1,47,000	Machine hours	4,200	$35.00	per machine hours
	Titanium Hubs	Sprockets
Direct material per unit	$36.00	$13.00
Direct Labor cost per unit	$9.00	$1.80
Manufacturing OH per unit(See Note)	$14.81	$0.23
Unit Product Cost	$59.81	$15.03
Note:
	Titanium Hubs	Sprockets
Machine Setups	$15,950	$12,760
Special Processing	$1,47,000	$0
Total Manufacturing OH	$1,62,950	$12,760
No. of units produced and sold	11,000	56,000
Manufacturing OH per unit	$14.81	$0.23