Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.80	21,000 units
Sprockets	0.40	54,000 units

Additional information about the company follows:

1. Hubs require $34 in direct materials per unit, and Sprockets require $15.
2. The direct labor wage rate is $19 per hour.
3. Hubs are more complex to manufacture than Sprockets and they require special processing.
4. The company’s activity-based absorption costing system has the following activity cost pools:

  

	Estimated		Expected Activity
Activity Cost Pool (and Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	13,680	80	64	144
Special processing (machine-hours)	$	107,500	4,300	0	4,300
General factory (Direct labor-hours)	$	729,600	16,800	21,600	38,400

Required:

2. Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing.

Compute the unit product cost for Hubs and Sprockets using activity-based absorption costing. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Hubs Sprockets Direct materials Direct labor Manufacturing overhead Unit product cost

Answer 1

Computation the unit product cost for Hubs and Sprockets using activity-based absorption costing

Particulars	Hubs	Suprockets
Direct Material	714000 (21000units x 34)	810000 (54000units x 15)
Direct labor	319200 ($19 x 0.80 x 21000units)	410400 ($19 x 0.40 x 54000units)
Manufacturing Overhead :
Machine Setup Cost	7600 [13680 x (80 / 144)]	6080 [13680 x (64 / 144)]
Special processing Cost	107500	0
General Factory cost	319200 [729600 x (16800 / 38400)]	410400 729600 x (21600 / 38400)]
Total Product Cost (A)	1467500	1636880
No. of Product (B)	21000	54000
Unit Product Cost (A/B)	69.88	30.31