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	26,000	units
Sprockets	0.30	49,000	units

Additional information about the company follows:

Hubs require $25 in direct materials per unit, and Sprockets require $17.

The direct labor wage rate is $12 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)	$	23,760	110	88	198
Special processing (machine-hours)	$	92,500	3,700	0	3,700
General factory (organization-sustaining)	$	253,400	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

a)Compute the activity for each cost pool.

Activity Cost Pool	(a)Estimated Overhead Cost	(b)ExpectedActivity	(a) ÷ (b) ActivityRateMachine
Machine setups	23760	198 setup	120 per setup
Special processing	92500	3700 MH	25 per MH
General factory	253400	0 DLH	0 per DLH

(b) Determine the unit cost of each product according to the ABC system, including direct materials and direct labor

Hubs

Activity Cost Pool	(a)Activity Rate	(b)Activity	(a) × (b)ABC Cos
Machine setups	120 per setup	110	13200
Special processing	25 per MH	3700	92500
General factory	0 per DLH	0	0
Total			105700

Sprockets:

Activity Cost Pool	(a)Activity Rate	(b)Activity	(a) × (b)ABC Cos
Machine setups	120 per setup	88	10560
Special processing	25 per MH	0	0
General factory	0 per DLH	0	0
Total			10560

Hubs           Sprockets

Direct materials                                          25.00          17.00

Direct labor:

$12 per DLH × 0.70 DLHs per unit           8.40

$12 per DLH × 0.30 DLHs per unit                              3.60

Overhead:

$ 105700 ÷ 26000 units                             4.06

$ 10560 ÷ 49000 units 0.21

Unit cost                                                     37.46          20.81