Question

Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor- Hours per Annual Unit Production 0.60 28,000 units 0.20 54,000 units Hubs Sprockets Additional information about the company follows: a. Hubs require $31 in direct materials per unit, and Sprockets require $17. b. The direct labor wage rate is $11 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 $ 24,300 $209,000 $157,200 Hubs Sprockets Total 100 80 180 3,800 0 3,800 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.

Answer 1

1.

Cost Pool	Cost Driver	Quantum	Overhead	Activity Rate
Machine Setups	No of Setups	180	$              24,300	$             135.00	per setup
Special processing	Machine hours	3800	$            209,000	$                55.00	per machine hour
General Factory	Direct Labor hours	27600	$            157,200	$                  5.70	per labor hour

2.

Hubs
Direct Material	$                    868,000	=28000*31
Direct Labor	$                    184,800	=28000*0.6*11
Overhead
Machine Setups	$                      13,500	=135*100
Special processing	$                    209,000	=55*3800
General Factory	$                      95,687	=157200/27600*16800
Total Overhead	$                    318,187
Total Cost	$                    502,987
Units	28000
Per unit cost	$                        17.96

3.

Sprockets
Direct Material	$                    918,000	=54000*17
Direct Labor	$                    118,800	=54000*0.2*11
Overhead
Machine Setups	$                      10,800	=135*80
Special processing	$                               -	=55*0
General Factory	$                      61,513	=157200/27600*10800
Total Overhead	$                      72,313
Total Cost	$                    191,113
Units	54000
Per unit cost	$                           3.54