Question

Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow. Direct Labor- Hours per Annual Unit Production 0.90 12,000 units 0.50 47,000 units Hubs Sprockets Additional information about the company follows: erences a. Hubs require $36 in direct materials per unit, and Sprockets require $17. b. The direct labor wage rate is $17 per hour. c. Hubs require special equipment and are more complex to manufacture than Sprockets. d. The ABC system has the following activity cost pools: Activity Activity Cost Pool (Activity Measure) Machine setups (number of setups) Special processing (machine-hours) General factory (organization-sustaining) Estimated Overhead Cost $ 27,000 $166,500 $363,300 Hubs Sprockets Total 150 120 270 3,700 0 3,700 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Compute the activity rate for each activity cost pool.

Answer 1

Solution

	Activity rate
Machine setup	$          100.00	Per setup
Special processing	$             45.00	Per machine hour

.

	Hubs	Sprokets
Direct material	$                    36.00	$                     17.00
Direct labor	$                    15.30	$                        8.50
Overheads	$                    15.13	$                        0.26
Unit cost	$                    66.43	$                     25.76

Working

Calculation of Activity rates
Activity Cost Pool	Activity driver	Overhead Cost (A)	Expected Activity (B)	Activity rate (A/B)
Machine setup	Number of setup	$ 27,000	270	$          100.00	Per setup
Special processing	Number of machine hour	$ 166,500	3700	$             45.00	Per machine hour

.

Cost assigned to Hubs
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        100.00	150.00	$ 15,000
Special processing	$           45.00	3,700.00	$ 166,500
Total Overheads assigned			$           181,500.00
Production			12,000.00
Overhead cost per unit			$ 15.13

.

Cost assigned to Sprokets
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        100.00	120	$ 12,000
Special processing	$           45.00	0	$ 0
Total Overheads assigned			$             12,000.00
Production			47,000.00
Overhead cost per unit			$                 0.26