Question

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

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	29,000	units
Sprockets	0.30	59,000	units

Additional information about the company follows:

1. Hubs require $32 in direct materials per unit, and Sprockets require $14.

2. The direct labor wage rate is $19 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. 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)	$	31,590	130	104	234
Special processing (machine-hours)	$	162,000	3,600	0	3,600
General factory (organization-sustaining)	$	161,900	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
	Activity rate
Machine setups	135	=31590/234
Special processing	45	=162000/3600
2
	Hubs	Sprockets
Machine setups:
130 X 135	17550
104 X 135		14040
Special processing	162000	0
Total overhead	179550	14040
Divide by units	29000	59000
Overhead per unit	6.19	0.24
	Hubs	Sprockets
Direct materials	32.00	14.00
Direct labor	13.30	5.70
Overhead	6.19	0.24
Unit cost	51.49	19.94