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	22,000	units
Sprockets	0.40	57,000	units

Additional information about the company follows:

1. Hubs require $35 in direct materials per unit, and Sprockets require $12.

2. The direct labor wage rate is $15 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. 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)	$	21,600	120	96	216
Special processing (machine-hours)	$	253,000	4,600	0	4,600
General factory (organization-sustaining)	$	222,800	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.

he activity rate for each activity cost pool.

	Activity Cost Pool Activity Rate Machine setups per setup Special processing per MH

Hubs Sprockets Direct materials Direct labor Overhead Unit cost

Answer 1

	Computation of ABC rate
	Activity	OH Costs(Col 1)	No. of activity base(Col 2)	Activity Rate(Col 1 / Col 2)
	Setup Costs(No. of setups)	$                     21,600	216	$                                100.00	per setup
	Special Processing(Machine hours)	$                  2,53,000	4,600	$                                  55.00	per machine hours
	Total Cost	$                  2,74,600
			Hubs		Sprockets
		ABC rate	Activity Based usage	Cost allocated	Activity Based usage	Cost allocated
	Setup Costs	$                     100.00	120	$                                12,000	96	$                       9,600
	Special Processing	$                       55.00	4600	$                             2,53,000	0	$                             -
	Total Overhead Costs			$                             2,65,000		$                       9,600
	Units Produced			22000		57000
	Overhead Costs per unit			$                                  12.05		$                         0.17
	Calculation of Production cost per unit
		Home	Work
	Direct Materials	$                       35.00	$                                      12.00
	Direct labor	$                       12.00	$                                        6.00
	Overhead Cost	$                       12.05	$                                        0.17
	Total Production coist per unit	$                       59.05	$                                      18.17