Question

Fogerty Company makes two products, titanium Hubs and Sprockets. Data regarding the two products follow Direct Labor Hours per Hubs Annual Production 19,000 units 46.000 units 0.60 0.20 Sorockets Additional information about the company follows: a. Hubs require $32 in direct materials per unit, and Sprockets require $17 b. The direct labor wage rate is $12 per hour. c. Hubs are more complex to manufacture than Sprockets and they require special equipment. d. The ABC system has the following activity cost pools: Estimated Activity Cost Pool (Activity Measure) Overhead Cost Hubs Machine setups (number of setups) $ 21,060 90 Special processing (machine-hours) $ 92,500 3,700 General factory (organization-sustaining) $ 66,600 NA Total 3.700 Required: 1. Compute the activity rate for each activity cost pool. Activity Cost Activity Rate Pool setup Machine setups Special processing per MH

Answer 1

1) Activity rate

Activity cost pool	Activity rate
Machine setup (21060/162)	130 per setup
Special processing (92500/3700)	25 per MH

2) Unit cost

	Hubs	Sprocket
Direct material	32	17
Direct labor	12*.60 = 7.20	2.40
Overhead	(90*130+92500)/19000 = 5.48	(72*130/46000) = 0.20
Unit cost	44.68	19.60