Question

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow:

  

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.50	19,000	units
Sprockets	0.10	47,000	units

Additional information about the company follows:

a. Hubs require $21 in direct materials per unit, and Sprockets require $12.

b. The direct labor wage rate is $16 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)	$	20,700	100	80	180
Special processing (machine-hours)	$	133,000	3,800	0	3,800
General factory (organization-sustaining)	$	65,900	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.)

	Hubs Sprockets Direct materials Direct labor Overhead Unit cost

Answer 1

Solution:(1): Calculation of the activity rate for each activity cost pool:

Activity cost pool	(a) Estimated overhead cost	(b) Expected activity	(a)÷(b) Activity rate
Machine setups	$20,700	180 setups	$115 per setup
Special processing	$133,000	3,800 MHs	$35 per MHs
General factory(organisation sustaining)	$65,900	N/A	N/A

Solution:(2):

Hubs:
Activity cost pool	(a) Activity rate	(b) Activity	(a)×(b) ABC cost
Machine setups	$115 per setup	100 setups	$11,500
Special processing	$35 per MH	3,800 MHs	$133,000
General factory	N/A	N/A	N/A
Total			$144,500
Sprockets:
Machine setups	$115 per setup	80 setups	$9,200
Special processing	$35 per MH	0	$0
General factory	N/A	N/A	N/A
Total			$9,200

Particulars	Hubs ($)	Sprockets ($)
Direct materials	$21	$12
Direct labour:
$16*0.5	$8
$16*0.1		$1.6
Overhead:
$144,500÷19000	$7.61
$9,200÷47,000		$0.20
Unit Cost	$36.61	$13.80