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	11,000 units
Sprockets	0.40	43,000 units

Additional information about the company follows:

a. Hubs require $25 in direct materials per unit, and Sprockets require $10.

b. The direct labor wage rate is $13 per hour.

c. Hubs are more complex to manufacture than Sprockets and they require special processing.

d. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated		Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	19,800	100	80	180
Special processing (machine-hours)	$	200,000	4,000	0	4,000
General factory (Direct labor-hours)	$	520,000	8,800	17,200	26,000

Required:

1. Compute the activity rate for each activity cost pool.

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.

Answer 1

1
	Activity rate
Machine setups	110	=19800/180
Special processing	50	=200000/4000
General factory	20	=520000/26000
2
	Hubs	Sprockets
Machine setups:
100 X 110	11000
80 X 110		8800
Special processing	200000
General factory :
8800 X 20	176000
17200 X 20		344000
Total overhead	387000	352800
Divide by units	11000	43000
Overhead per unit	35.18	8.20
	Hubs	Sprockets
Direct materials	25.00	10.00
Direct labor	10.40	5.20
Manufacturing Overhead	35.18	8.20
Unit product cost	70.58	23.40