Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	19,000	units
Sprockets	0.30	49,000	units

Additional information about the company follows:

1. Hubs require $39 in direct materials per unit, and Sprockets require $20.

2. The direct labor wage rate is $17 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)	$	21,735	115	92	207
Special processing (machine-hours)	$	209,000	3,800	0	3,800
General factory (organization-sustaining)	$	204,400	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

• Requirement 1

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$21,735	207	$105.000	per setup
Special processing	$209,000	3800	$55.00	per MH

• Requirement 2

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                 39.00	[given]	$                        20.00	[given]
Direct labor	$                 11.90	0.70 DLHs x $ 17	$                         5.10	0.30 DLHs x $ 17
Overhead	$                 11.64	[(115 x $105)+(92 x $55)]/19000	$                         0.20	[(92 x $105)+(0 x $55)]/49000
Unit cost	$                 62.54	Answer	$                        25.30	Answer