Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.60	17,000	units
Sprockets	0.20	54,000	units

Additional information about the company follows:

1. Hubs require $34 in direct materials per unit, and Sprockets require $18.

2. The direct labor wage rate is $16 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)	$	29,160	120	96	216
Special processing (machine-hours)	$	110,000	4,400	0	4,400
General factory (organization-sustaining)	$	96,600	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

Answer

--Requirement 1, with calculations

Activity Cost Pool	Overhead cost	Total Activity	Activity Rate
	[A]	[B]	[C = A/B]
Machine setups	$29,160	216	$135.000	per setup
Special processing	$110,000	4400	$25.00	per MH

--Requirement 2

	Hubs		Sprockets
	Answer	Working	Answer	Working
Direct materials	$                 34.00	[given]	$                        18.00	[given]
Direct labor	$                  9.60	0.70 DLHs x $ 16	$                         3.20	0.30 DLHs x $ 16
Overhead	$                  7.42	[ (120 x$ 135) + (4400 x $25)]/17000 units]	$                         0.24	[ (96 x $ 135) / 54000]
Unit cost	$                 51.02		$                        21.44