Question

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

Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor- Hours per Annual Unit Production 0.90 27,000 units 0.50 41,000 units Hubs Sprockets Additional information about the company follows: a. Hubs require $36 in direct materials per unit, and Sprockets require $12. b. The direct labor wage rate is $19 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 $ 28,080 $220,000 $331,800 Hubs Sprockets Total 130 104 234 4,000 0 4,000 ΝΑ ΝΑ ΝΑ 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

Solution

Requirement 1

	Activity rate
Machine setup	$          120.00	Per setup
Special processing	$             55.00	Per machine hour

Requirement 2

	Hubs	Sprockets
Direct material	$                    36.00	$                     12.00
Direct labor	$                    17.10	$                        9.50
Overheads	$                      8.73	$                        0.30
Total Cost	$                    61.83	$                     21.80

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	$ 28,080	234	$          120.00	Per setup
Special processing	Number of machine hour	$ 220,000	4000	$             55.00	Per machine hour

.

Cost assigned to Hubs
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        120.00	130.00	$ 15,600
Special processing	$           55.00	4,000.00	$ 220,000
Total Overheads assigned			$ 235,600
Production			27,000.00
Overhead cost per unit			$ 8.73

.

Cost assigned to Sprockets
Activity name	Activity Rates	Activity	ABC Cost
	(A)	(B)	(A x B)
Machine setup	$        120.00	104	$ 12,480
Special processing	$           55.00	0	$ 0
Total Overheads assigned			$ 12,480
Production			41,000.00
Overhead cost per unit			$                 0.30