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 29,000 units Sprockets 0.40 53,000 units Additional information about the company follows: Hubs require $35 in direct materials per unit, and Sprockets require $17. The direct labor wage rate is $17 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. 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) $ 23,625 125 100 225 Special processing (machine-hours) $ 242,000 4,400 0 4,400 General factory (organization-sustaining) $ 298,800 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.

Answer 1

Answer

1.

The activity rate for each activity cost pool:

Activity Cost Pool	Estimated Overhead Cost (a)	Expected Activity (b)	Activity Rate (a/b)
Machine Setups	23625	225	105 Per Setup
Special Processing	242000	4400	55 Per MH

2.

The unit product cost of each product according to the ABC system:

Particulars	Hubs	Sprockets
Direct Materials	35	17
Direct Labor:
$17 per DLH * 0.80 DLH per units	13.60
$17 per DLH * 0.40 DLH per units		6.80
Overhead:
$255125 / 29,000 units	8.80
$10500 / 53,000 units		0.20
Total Unit Cost	57.40	24

Working:

Abc cost:

1.HUBS:

Machine Setups      125*105   =$13125

Special Processing 4400*55 =$242000

Total                                    =$255125

2.Sprockets:

Machine Setups            100*105    =$10500

Special Processing         0*55         =$0

Total                                           =$10500