Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	17,000 units
Sprockets	0.30	57,000 units

Additional information about the company follows:

a. Hubs require $28 in direct materials per unit, and Sprockets require $14.

b. The direct labor wage rate is $19 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)	$	25,740	130	104	234
Special processing (machine-hours)	$	140,000	4,000	0	4,000
General factory (Direct labor-hours)	$	203,000	11,900	17,100	29,000

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.

Answer 1

	Estimated	Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost	Hubs	Sprockets	Total	Activity Rate = Overhead Cost/Total Activity
Machine setups (number of setups)	25,740	130	104	234	110
Special processing (machine-hours)	140,000	4,000	0	4,000	35
General factory (Direct labor-hours)	203,000	11,900	17,100	29,000	7
Calculation of unit product cost
	Hubs	Speakers
Direct material per unit	28.00	14.00
Direct labor per unit	13.30	5.70
Overheads
Machine setups (number of setups)	14,300.00	11,440.00
Special processing (machine-hours)	140,000.00	-
General factory (Direct labor-hours)	83,300.00	119,700.00
Total overheads	237,600.00	131,140.00
Overhead cost per unit	13.98	2.30
Unit product cost	55.28	22.00

DE 1 Estimated Expected Activity 2 Activity Cost Pool (and Activity Measure) Overhead Cost Hubs 3 Machine setups (number of setups) 25740 130 4 Special processing (machine-hours) 140000 4000 5 General factory (Direct labor-hours) 203000 11900 6 Sprockets Total Activity Rate = Overhead Cost/Total Activity 104 234 =B3/E3 4000 =B4/E4 17100 29000 =B5/E5 Speakers Hubs 28 =19*0.7 14 =19*0.3 8 Calculation of unit product cost 9 10 Direct material per unit 11 Direct labor per unit 12 Overheads 13 Machine setups (number of setups) 14 Special processing (machine-hours) 15 General factory (Direct labor-hours) 16 Total overheads 17 Overhead cost per unit 18 Unit product cost =F3*C3 =F3*C3 =F3*D3 =F4*C4 =F4*D4 =F5*C5 =F5*D5 =SUM(B13:B15) =SUM(C13:C15) =B16/17000 =C16/57000 =B10+B11+B17 =C10+C11+C17 19