Question

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

	Direct Labor Hrs Per Unit	Annual
Hubs	0.60	30,000 units
Sprockets	0.20	43,000 units

Additional information about the company follows:

Hubs require $39 in direct materials per unit, and Sprockets require $15. The direct labor wage rate is $16 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. The ABC system has the following activity cost pools:

Activity Cost Pool (Activity Measure)	Estimated Overhead Cost	Hubs	Sprockets	Total
Machine setups (number of setups)	31,050	150	120	270
Special processing (machine-hours)	140,000	4,000	0	4,000
General factory (organization-sustaining)	155,600	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

• [1]

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$31,050	270	$115.000	per setup
Special processing	$140,000	4000	$35.00	per MH

• [2]

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                                     39.00	[given]	$                        15.00	[given]
Direct labor	$                                       9.60	0.60 DLHs x $ 16	$                         3.20	0.20 DLHs x $ 16
Overhead	$                                       5.24	[ (150 x$ 115) + (4000 x $35)]/30000 units]	$                         0.32	[ (120 x $ 115) / 43000]
Unit cost	$                                     53.84		$                        18.52