Question

1 Fogerty Company makes two products-titanium Hubs and Sprockets. Data regarding the two products follow: ts Direct Labor Hours per Unit 0.60 0.20 Hubs Sprockets Annual Production 25,000 units 45,000 units 00:34:36 eBook Print Additional information about the company follows: a. Hubs require $29 in direct materials per unit, and Sprockets require $11. b. The direct labor wage rate is $20 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: eferences Activity Cost Pool and Activity Measure) Machine setups (number of setups) Special processing (nachine-hours) General factory (Direct labor-hours) Estimated Overhead Cost $ 24,840 $164,500 $336,000 Expected Activity Hubs Sprockets Total 92 207 4,700 e 4,700 15,000 9,000 24,000 115

Answer 1

1) Computation of the activity rate for each activity cost pool

Formula:

Activity rate

=Total overhead cost/Expected activities

Activity	Total overhead cost($) [A]	Expected Activities [B]	Activity rate($) [C=A/B]
Machine setup	24840	207	120
Special processing	164500	4700	35
General Factory	336000	24000	14

2) Computation of the unit product cost for Hubs and Sprockets using activity based absorption costing

Total Manufacturing overhead cost allocated to product Hubs

Particulars	Activity rate($)	Number of activities	Overhead cost($)
Material setup	120	115	13800
Special processing	35	4700	164500
General Factory	14	15000	210000
Total Manufacturing overhead cost			388300

Total Manufacturing overhead cost allocated to product Sprockets

Particulars	Activity rate($)	Number of activities	Overhead cost($)
Material setup	120	92	11040
Special processing	35	0	0
General Factory	14	9000	126000
Total manufacturing overhead cost			137040

Unit product cost

Particulars		Hub	Sprockets
A)Direct material	{given}	$29	$11
B) Direct labor	{Direct labor hours per unit * Direct labor wage rate per hour}	0.60*$20 =$12	0.20*$20 =$4
C)Manufacturing overhead	{Total overhead allocated/ Annual production}	$388300/25000units =$15.5	$137040/45000units =$3.05
D) Unit product cost [A+B+C]		$56.5	$18.05

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