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	20,000	units
Sprockets	0.30	41,000	units

  

Additional information about the company follows:

a.	Hubs require $37 in direct materials per unit, and Sprockets require $12.
b.	The direct labor wage rate is $19 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)	$	27,945	115	92	207
Special processing (machine-hours)	$	230,000	4,600	0	4,600
General factory (organization-sustaining)	$	173,900	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

!)	Activity rate
				Estimated	Activity	Rate
	Activity cost pool			overhead
				A	B	C=a/b
	Machine setups			27,945	207	135	per setup
	Special processing			230,000	4,600	50	per machine hours
2)	overhead allocated = rate *Activity
	hubs
	Activity cost pool		Rate	Activity	total
			A	B	C=A*B
	Machine setups		135	115	15525
	Special processing		50	4,600	230000
	total overhead				245525
	overhead cost per unit			245525/20000
				12.28
	Sprockets
	Activity cost pool		Rate	Activity	total
			A	B	C=A*B
	Machine setups		135	92	12420
	Special processing		50	0	0
	total overhead				12420
	overhead cost per unit			12420/41000
				0.30
			hubs	Sprockets
	Direct materials		37	12
	direct labor		13.3	5.7
	overhead		12.28	0.30
	unit cost		62.58	18.00