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 13,000 units 0.20 47,000 units Hubs Sprockets Additional information about the company follows: a. Hubs require $37 in direct materials per unit, and Sprockets require $16. 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 $ 30,375 $ 86,000 $148,800 Hubs Sprockets Total 135 108 243 4,300 0 4,300 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

Answer

• Requirement 1

Activity Cost Pool	Overhead cost	Total cost drivers	Activity Rate
Machine Setup	$            30,375.00	243	$                 125.00	per stup
Special Processing	$            86,000.00	4,300	$                   20.00	per MH

• Requirement 2

Working		Hubs	Sprockets
A	Direct Materials	$                    37.00	$                   16.00
B [Working #2]	Direct Labor	$                    11.40	$                     3.80
C [Working #1]	Overhead	$                       7.91	$                     0.29
D = A+B+C	Unit Cost	$                    56.31	$                   20.09

--Working #1

Activity Cost Pool	Hubs	Sprockets
Machine Setup	$            16,875.00	$           13,500.00
Special Processing	$            86,000.00	$                          -
Total Overead cost allocated	$          102,875.00	$           13,500.00
Total units	13000	47000
Overhead cost per unit	$                       7.91	$                     0.29

--Working #2

Working		Hubs	Sprockets
A	Direct labor hours per unit	0.60	0.20
B	Wage rate per hout	$                    19.00	$                   19.00
C= A x B	Direct labor cost per unit	$                    11.40	$                     3.80