Question

Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow: Direct Labor-Hours per Unit Annual Production Hubs 0.60 16,000 units Sprockets 0.20 45,000 units Additional information about the company follows: Hubs require $31 in direct materials per unit, and Sprockets require $16. The direct labor wage rate is $10 per hour. Hubs require special equipment and are more complex to manufacture than Sprockets. The ABC system has the following activity cost pools: Estimated Activity Activity Cost Pool (Activity Measure) Overhead Cost Hubs Sprockets Total Machine setups (number of setups) $ 29,250 125 100 225 Special processing (machine-hours) $ 168,000 4,800 0 4,800 General factory (organization-sustaining) $ 171,600 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

1			working
Activity cost pool	activity rate		total overhead / total activity
Machine set ups	130$	Per set up	29250/225
Special processing	35$	Per MH	168000/4800
2	Hubs	Sprockets
Direct material	31	16
direct labor*	6	2
overhead**	11.52	0.29
unit cost	$48.52[31+6+11.52]	$18.29 [16+2+0.29]
WORKING
*	0.60*10$ per hour	0.2*$10 per hour
**
machine set ups	16250($130per setup*125set ups)	13000(130$*100set ups)
Special processing	168000	0
Total cost allocated a	184250	13000
units produced b	16000	45000
cost per unit a/b	11.52	0.29