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	25,000	units
Sprockets	0.20	51,000	units

Additional information about the company follows:

a. Hubs require $31 in direct materials per unit, and Sprockets require $11.

b. The direct labor wage rate is $13 per hour.

c. Hubs are more complex to manufacture than Sprockets and they require special processing.

d. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated				Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost			Hubs			Sprockets			Total
Machine setups (number of setups)	$	19,665			95			76			171
Special processing (machine-hours)	$	126,000			3,600			0			3,600
General factory (Direct labor-hours)	$	478,800			15,000			10,200			25,200

Required:

1. Compute the activity rate for each activity cost pool.

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Answer 1

Solution

	Activity rate
Machine setup	$          115.00	Per setup
Special processing	$             35.00	Per machine hour

.

	Hubs	Sprokets
Direct material	$                    31.00	$                     11.00
Direct labor	$                      7.80	$                        2.60
Overheads	$                      5.48	$                        0.17
Unit cost	$                    44.28	$                     13.77

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	$ 19,665	171	$          115.00	Per setup
Special processing	Number of machine hour	$ 126,000	3600	$             35.00	Per machine hour

.

Cost assigned to Hubs
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        115.00	95.00	$ 10,925
Special processing	$           35.00	3,600.00	$ 126,000
Total Overheads assigned			$           136,925.00
Production			25,000.00
Overhead cost per unit			$ 5.48

.

Cost assigned to Sprokets
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        115.00	76	$ 8,740
Special processing	$           35.00	0	$ 0
Total Overheads assigned			$               8,740.00
Production			51,000.00
Overhead cost per unit			$                 0.17

Labor cost per unit= Labor hour rate x labor hours per unit