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	12,000	units
Sprockets	0.40	53,000	units

  

Additional information about the company follows:

a.	Hubs require $38 in direct materials per unit, and Sprockets require $10.
b.	The direct labor wage rate is $15 per hour.
c.	Hubs are more complex to manufacture than Sprockets and they require special equipment.
d.	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)	$	32,760	140	112	252
Special processing (machine-hours)	$	198,000	4,400	0	4,400
General factory (organization-sustaining)	$	348,800	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. (Round intermediate calculations and final answers to 2 decimal places.)

      

Answer 1

Requirement 1
Activity rate for each activity cost pool
Activity	Activity Base	Estimated overhead Cost	Total Activity	Activity Rate
Machine Setups	Number of Setups	32,760	252	130.00	Per Setup
Special Processing	Machine Hours	1,98,000	4,400	45.00	Machine Hours
General Factory	Organisation -Sustaining	3,48,800	0	0

Requirement 2
Unit product cost
	Hubs	Sprockets
Direct Materials Cost	38	10
Direct Labor	12	6
	(0.80*15)	(0.40*15)
Overheards
Machining	1.52	0.27
	(140*130)/12000	(112*130)/53000
Special processing	16.5	0
	(4400*45)/12000
Total Unit product cost	68.02	16.27